Business Acquisition w/ Leased Property

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November 02, 2024

by a searcher from Northeastern University - D'Amore-McKim School of Business in New York, NY, USA

What are factors to consider when evaluating buying a business that has a leased location vs buying a business + buying the property that the business is located on?

Could someone help me understand how to determine if buying a business with a leased location is a good investment?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Happy to have a discussion to talk through the options and to help you look at the financial viability of both options. Ultimately if you are going to invest capital in the real estate, you want to be sure it makes financial sense. Namely, is it a location that is good for the business long-term and will you ultimately get some benefit out of it. If it it not a good location, it might be better to put your capital into the business versus the real estate because you can likely get a better return out of growing the business.

There are also some financing considerations to keep in mind as well. If you plan to use SBA financing, you can get some better terms by including the real estate into the SBA loan. Happy to walk through options and discuss your specific situation. You can reach me here or directly at redacted
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Reply by a searcher
from Bowling Green State University in Surrey, BC, Canada
For a leased location, you will want to ensure your offer to purchase is subject to getting an acceptable lease for the property (ie. a rate that makes budgetary sense, typically with a minimum of 5-year term with option to renew for min. 5-years, and a right-of-first-refusal to purchase).
If the current owner of the business owns the property, ensure to check he/she has been paying market rents to him/herself. If not, you'll want to adjust EBITDA accordingly. I've seen a few instances recently where applying market rents actually craters the value of the business.
To own the property can be a great option if you can afford it - forced savings mechanism. In tough times, you may be able to leverage the property when business performance may not be good enough for financing.
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