The short version
- Value the business and the property separately, using different methods.
- Below market rent can lower your value, since buyers underwrite market rent.
- Several exit paths exist, including keeping the property as landlord.
- The property may need its own buyer or strategy.
Two Assets, Two Methods
A business is valued on its earnings times a multiple. Real estate is valued on net operating income divided by a cap rate. Mixing the two methods leaves money on the table, so owners who hold both should price them separately.
OpCo and PropCo
Many owners split the operating company, the OpCo, from the entity that owns the property, the PropCo. The OpCo pays rent to the PropCo. A clean structure with a written lease makes the business easier to sell and the property easier to value.
Rent That Is Too Low
Cheap rent feels like a perk. Buyers underwrite at market rent, which lowers adjusted earnings and can pull the multiple down. The fix is a market rate lease signed before you list.
Four Ways Out
- Sell the business and the property together to one buyer.
- Sell the business and stay on as the new owner's landlord.
- Sell the property separately, before or after the business.
- Keep the property for income or estate planning.
Buyers May Not Want the Land
A buyer using every dollar to buy the business often cannot also buy the building. Expect the property to need its own buyer or plan. A horse farm, a restaurant building or a shop with yard space are all examples.
Check the Numbers First
Owners misjudge property value in both directions. A market rate review is worth doing either way. Tax tools such as a 1031 exchange can help once the decision is made, but they should not drive it.
Questions for Your Advisors
- What is the property worth at market rent?
- Should the property sit in its own entity?
- When is the best time to sell it?
Next Steps
See how buyers price a stable in horse boarding and training, check asset sale pricing and then find your sale price.