How does Business Real Estate effect the sale of a Business?
If
you own business real estate in addition to the company your operating
it has upsides and down when it comes to selling the business.I can say about one third of the buyers out there are specificially looking for business with property, then about one third specifically do not want property, the remaining third is open minded to real estate.
Advantages of Business Real Estate
The biggest advantage of acquiring a business with real estate will be leverage with the bank. Banks will give you more favorable rates and terms when such a large asset such as real estate is being used as collateral to finance the acquisition of the business.To use bank financing to acquire a business without property, you're looking at 30% at least as a down payment with a 7 year term. If this business includes the real estate, you're looking at an overall 15% down payment with an 18 - 22 year term. The extended term on these "blended loans" make your debt service more manageable in some cases.
Another advantage is equity. If your initial mortgage payment is competitive with market rents, then naturally in time you'll have the advantage of building equity with the combination of reducing the balance of the mortgage and realizing long-term appreciation.
Through forced apprecation (material upgrades, renovation) you will realize the long term returns when it comes time to sell.
Disadvantages of Real Estate
The biggest disadvantage to owning business real estate is the extra capital required to buy the business. It's one thing to come up with the down payment for the business, but many buyers simply wont have the capital to acquire the property as well.
Buyer's who have marginal captial may find that their debt service on the building would exceed fair market rents for similar spaces.
