How to Handle Real Estate When Selling Your Business
Key Takeaways
- If you own the building your business operates from, you have an important decision to make before you sell
- Including real estate in the deal simplifies things but may leave money on the table
- Separating the real estate — and leasing back to the buyer — can generate ongoing income and a cleaner business valuation
- The right answer depends on your personal financial situation, not a one-size-fits-all rule
A lot of small business owners own both the business and the building it operates from. If that's your situation, you have an extra decision to make before you go to market — one that can have a bigger impact on your total proceeds than almost anything else in the deal.
Do you sell the real estate with the business? Or do you keep it?
Option 1: Include the real estate in the sale
The simplest approach is to sell everything together. The upside: it's clean. One buyer, one deal, one closing. It's also easier to finance for buyers, since commercial real estate can often be included in an SBA loan.
The downside: you're giving up a significant asset that may be worth more separately. Also, bundling real estate can actually muddy the business valuation conversation.
Option 2: Sell the business, keep the real estate
Here you sell the business and simultaneously enter into a long-term lease with the new owner. You retain the property and collect rent.
The upside: you keep a valuable asset that continues to appreciate and generate income. The business can often be valued more cleanly without real estate in the mix.
The downside: you're now a landlord. If the new owner struggles and can't pay rent, you have a problem.
What the numbers look like
Say you own a building worth $800K and a business worth $1.2M. Together, a buyer might offer $1.8M for the package. Separately, you might sell the business for $1.2M and retain a building worth $800K generating $5,000/month in rent. Total value: $2M plus ongoing income.
The California wrinkle: Proposition 13
If you are in California and have owned the building for a long time, there is a factor that does not exist in most other states. Your property tax basis is anchored to what you paid, not what the building is worth today. A change in ownership triggers reassessment to current market value.
For a building bought in the 1990s, the gap between assessed value and market value can be enormous, and the resulting tax increase lands on whoever owns it afterwards. That cuts both ways. It is a real cost a buyer will price in if the property transfers — and it is a strong argument for keeping the building and leasing it back, because your basis survives.
More on this in selling a business in California.
Start the conversation early
The real estate decision shapes how you market the business. It needs to be made before you go to market — not negotiated on the fly when an offer comes in.
Real estate decisions in a business sale are often worth more than people expect. We help you think through the options before going to market.
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