How does buying real estate with a business affect the valuation/cap table?

November 14, 2025

by a searcher from Dartmouth College - Tuck School of Business at Dartmouth in Albany, NY, USA

In a case where I am buying both a $1.5mm business and the $500k property that business operates out of, how does the real estate purchase affect the final valuation/cap table? In other words, would the business's post-acquisition equity value be $1.5mm or $2mm? Thank you!

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Reply by a professional
from Seton Hall University in Morristown, NJ 07960, USA

I would look at the businesses separately (if you are not already). $1.5M equity in Opco and $500K in Propco. If you are showing that Opco (active) pays FMV rent to Propco (passive), and both biz look good, then you are talking about two biz opportunities and a large number of additional future financing possibilities for you as you grow. I had exactly that scenario for a company with the commercial real estate in a separate legal entity from operations. When the owner found an add-on business, we used cash on hand and equity in the building to buy the new line of business. Margins on the second biz were great, and he improved them even more because he folded it into his existing platform. We were off to the races...

Reply by a searcher
from University of Illinois at Urbana in Chicago, IL, USA

I agree - you will be buying two distinct assets, which is great in terms of flexibility. The value of your property will be driven by the amount of rent paid from the tenant (your operating company), so you have some control on the real estate valuation. Keep in mind, you would also be showing an offsetting expense on the operating company side, but that might be fine if you are cash flowing well.

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