Should Real Estate Be Included In The Sale Of A Business?

Should a business opportunity offering include the real estate?

There are no right or wrong answers to the question about whether the seller of a business should include the real property, or sell the company only and continue on as the landlord/lady.

This question was posed to our panel of industry resources and we got a diverse range of suggestions and ideas, demonstrating that the solution to this puzzle depends on circumstances and requirements of the parties.

 

Following is the question that a BizBen Blog reader posed to our panel of resources, and the responses, edited for clarity, are listed below:

"I am thinking of selling my business but I also own the real estate where my business is located. Is it a good idea to sell the real estate with the business? Are more buyers looking to buy a business with the real estate? How will having real estate (or not) affect potential buyers seeking financing to buy my business? Some feedback on this issue would be nice since I am about to put my business up for sale and debating whether to include the real estate portion."

Here are responses from our California industry resources on this issue:

"Depending upon how you structure your financials, the business could be worth more money with the real estate.  S.B.A. looks favorably upon real estate tied to business acquisitions due to collateral.  Will certainly make it more appealing to the S.B.A."

Randall J. Barondess, Director, Troop Business Services, Westlake Village

"The value of the business and the value of the real estate are obviously handled separately. It is important to note that the business will need to show payments of fair market rent in the expenses for the business to the owner. If not this will need to be adjusted. I advise my clients to offer the real estate both for sale or for lease. I would determine a fair market value for both. Some buyers are interested in only leasing and not buying the real estate. When a buyer purchases the real estate, a lender will be more inclined to provide financing for the transaction. The business will of course still need to generate positive cash flow to substantiate the payments. If the buyer of the business decides to lease the real estate, then the seller can look to sell the property to an investor with that lease in place. Giving the buyer the choice will increase your odds in selling the business."

Matt Coletta, Managing Partner, Business Team, Woodland Hills

"Yes, yes and yes.  All things being equal, real estate attracts a far greater population of buyers.  Financing is also easier with real estate as part of the package.  When negotiating the ultimate deal, consider a short-term lease on the real estate to achieve the desired business price while giving the Seller some attractive tax advantages.  The commercial real estate market is down right now so the net effect is that the appraised value of the real estate is down. You can use this lease term to bridge this down market."

Patrick Marsch, First Choice Business Brokers, San Diego

"Its all depends upon business financials too. If his business is showing great cash flow and buyer is experienced and strong financially and credibility-wise, then he can be qualified for a business loan. Otherwise to get a business loan without real estate is like finding water on the moon!  Best idea is to sell with real estate and there are better chances of selling easily with 20-30% down. Even if the business is strong financial-wise, and showing good income, the buyer still has to come up with 50% down these days. No Bank is doing any loan with 35% down without secured real estate or property collateral !!"

I hope the seller knows his business's paper work well to make a decision now!

Taj  Randhawa, RE/MAX, Fresno