Should I Sell the Building with My Business?

If you are a business owner who is selling the business and you own the real estate, then you have some nice options to consider. Did you know that you do not have to sell the building with selling the business? Instead, you have the option to sell the business along with a long-term lease to the building. There are some good reasons why you may want to consider holding on to the real estate title when you sell your business.

3 Reasons to Sell the Building when Selling the Business

First, let’s examine the main reasons why a business owner would want to sell the property along with the business as a package deal. There are three main reasons:

One – Bigger Sales Price

If the real estate is in a prime location and in good condition, then the property will no doubt make a considerable contribution to the total sales price. If a business seller wants to get as much money as possible at the time of the sale, then selling the building when selling the business is the best option.

Two – One Time Taxes

Paying income taxes is no fun. If a business owner holds on to the property and receives rent money each year, then they are going to have to pay income taxes each and every year. A one-time sale means that you will pay capital gains tax once and income tax once on this transaction. It is one expensive headache and done.

Three – Close the Door and Move On

There comes a time in every business owner’s life when they are simply done with dealing with it all. They are ready to cut all the strings and move on to another chapter in their life. Good riddance. Keeping title to the property can be a sore reminder of memories ready to be forgotten, even if they never set foot on the property again. It may be better to sell the business and everything connected to it.

3 Reasons to Keep the Building and Lease it to the New Owner

Perhaps you can relate to some, if not all, of the reasons why you may want to sell the building along with selling the business. Let’s take a look at the other side of the coin and consider the main reasons why many savvy business owners decide to keep the real estate and just sell the business.

One – No Capital Gains Tax

Uncle Sam does not charge a capital gains tax when selling the business, it’s only the real estate that gets that privilege. As long as you hold the title to the property, you will not have to pay any capital gains tax. In addition, because the sale will only include the business, the income taxes that you pay at the end of the year will be much lower.

Two – Lower Sales Price, Easier Sale

Sure, we all want to walk away from a closing with fistfuls of cash, but including the building can make it more difficult for a buyer to come up with the purchase price. Buying the building along with the business means that the buyer will need to have substantially more capital in order to get a mortgage. On the other hand, payment of the lease comes out of the cash flow. As long as the business is profitable, this arrangement may make it easier for your buyer to get a loan.

Three – Long-Term Income Stream

Are you looking to retire after the sale of your business? If so, then how does a steady stream of large monthly sums of money with absolutely no landlord obligations sound to you? It is very common in the commercial world to create a lease whereby the tenant is responsible for absolutely all property expenses – including property taxes, insurance, maintenance and even structural repairs. All you do is collect the rent over the ten or more years the lease is active.

How to Lease the Building to the Business

The buyer is going to need assurance that they will be able to remain indefinitely at the current location. This can be done by having your attorney prepare a long-term lease with multiple renewal options. The lease should have an initial term of at least ten years with at least two five-year renewal options.

Your business broker can help you to determine the rental rate. It needs to be market-based and competitive. It is common that the rent be fixed for a considerable period of time, say five years, with periodic increases spelled out in the lease agreement.

The lease agreement should be either a triple-net or an absolute net lease. A triple-net lease requires the tenant to pay for all costs except structural repairs. An absolute net lease holds the tenant responsible for absolutely all property expenses. The landlord has no say in the management of the property and no obligation towards anything.

Will I Make More Money if I Lease the Building to the Business?

Let’s get down to the real issue at hand: which decision will net you more money. To answer that question, we decided to compare the sale of the building with the sale of the business versus the leasing of the building with the sale of the business.

First, let’s look at it from a cash flow perspective. If the seller packages the business and the building together, he will walk away with a little over $1.2 million at closing. By holding on to the real estate, the seller will only net $220,000. Over a ten-year lease period, however, the seller will have earned $660,000 or half of what he could have gotten if he sold the building with the business.

But here’s the clincher, after ten-years of raking in $44,000 of net income each year, he still owns the building that is valued at over $1 million dollars and a tenant that has several more renewal options on their lease! All in all, the lease transaction will create over 40 percent more net worth. So, my dear seller, it really comes down to one question. Do you want all your money now or a steady income stream for years to come?

Sell a Business Should I Sell the Building with My Business?

If you are a business owner who is selling the business and you own the real estate, then you have some nice options to consider. Did you know that you do not have to sell the building with selling the business? Instead, you have the option to sell the business along with a long-term lease to the building. There are some good reasons why you may want to consider holding on to the real estate title when you sell your business.

3 Reasons to Sell the Building when Selling the Business

First, let’s examine the main reasons why a business owner would want to sell the property along with the business as a package deal. There are three main reasons:

One – Bigger Sales Price

If the real estate is in a prime location and in good condition, then the property will no doubt make a considerable contribution to the total sales price. If a business seller wants to get as much money as possible at the time of the sale, then selling the building when selling the business is the best option.

Two – One Time Taxes

Paying income taxes is no fun. If a business owner holds on to the property and receives rent money each year, then they are going to have to pay income taxes each and every year. A one-time sale means that you will pay capital gains tax once and income tax once on this transaction. It is one expensive headache and done.

Three – Close the Door and Move On

There comes a time in every business owner’s life when they are simply done with dealing with it all. They are ready to cut all the strings and move on to another chapter in their life. Good riddance. Keeping title to the property can be a sore reminder of memories ready to be forgotten, even if they never set foot on the property again. It may be better to sell the business and everything connected to it.

3 Reasons to Keep the Building and Lease it to the New Owner

Perhaps you can relate to some, if not all, of the reasons why you may want to sell the building along with selling the business. Let’s take a look at the other side of the coin and consider the main reasons why many savvy business owners decide to keep the real estate and just sell the business.

One – No Capital Gains Tax

Uncle Sam does not charge a capital gains tax when selling the business, it’s only the real estate that gets that privilege. As long as you hold the title to the property, you will not have to pay any capital gains tax. In addition, because the sale will only include the business, the income taxes that you pay at the end of the year will be much lower.

Two – Lower Sales Price, Easier Sale

Sure, we all want to walk away from a closing with fistfuls of cash, but including the building can make it more difficult for a buyer to come up with the purchase price. Buying the building along with the business means that the buyer will need to have substantially more capital in order to get a mortgage. On the other hand, payment of the lease comes out of the cash flow. As long as the business is profitable, this arrangement may make it easier for your buyer to get a loan.

Three – Long-Term Income Stream

Are you looking to retire after the sale of your business? If so, then how does a steady stream of large monthly sums of money with absolutely no landlord obligations sound to you? It is very common in the commercial world to create a lease whereby the tenant is responsible for absolutely all property expenses – including property taxes, insurance, maintenance and even structural repairs. All you do is collect the rent over the ten or more years the lease is active.

How to Lease the Building to the Business

The buyer is going to need assurance that they will be able to remain indefinitely at the current location. This can be done by having your attorney prepare a long-term lease with multiple renewal options. The lease should have an initial term of at least ten years with at least two five-year renewal options.

Your business broker can help you to determine the rental rate. It needs to be market-based and competitive. It is common that the rent be fixed for a considerable period of time, say five years, with periodic increases spelled out in the lease agreement.

The lease agreement should be either a triple-net or an absolute net lease. A triple-net lease requires the tenant to pay for all costs except structural repairs. An absolute net lease holds the tenant responsible for absolutely all property expenses. The landlord has no say in the management of the property and no obligation towards anything.

Will I Make More Money if I Lease the Building to the Business?

Let’s get down to the real issue at hand: which decision will net you more money. To answer that question, we decided to compare the sale of the building with the sale of the business versus the leasing of the building with the sale of the business.

selling a Business

First, let’s look at it from a cash flow perspective. If the seller packages the business and the building together, he will walk away with a little over $1.2 million at closing. By holding on to the real estate, the seller will only net $220,000. Over a ten-year lease period, however, the seller will have earned $660,000 or half of what he could have gotten if he sold the building with the business.

But here’s the clincher, after ten-years of raking in $44,000 of net income each year, he still owns the building that is valued at over $1 million dollars and a tenant that has several more renewal options on their lease! All in all, the lease transaction will create over 40 percent more net worth. So, my dear seller, it really comes down to one question. Do you want all your money now or a steady income stream for years to come?