How to model real estate cost with business?

by a searcher from The University of Michigan - Stephen M. Ross School of Business

2 years ago

I have a business under LOI and I'm planning to buy the real estate along with the business. I'm curious to hear how people model real estate cost into the deal. For example, if you had been looking at an asset purchase of a business for $1M at a 3X EBITDA multiple ($333K EBITDA), and the real estate costs $333K, how would the combined $1.333M price tag be viewed? A total of business valuation of 4X EBITDA? Or a 3X business valuation + real estate, with the real estate portion being viewed in a different light from business operations?

The main reason I'm asking is thinking about modeling returns for equity holders.

5 likes
255 views
24 comments

searcher

Following the topic, thanks for the great insights all!

2 years ago | like reply | 0 likes

searcher from Yeshiva University - Sy Syms School of Business

One thing to consider that is often overlooked is property tax reassessment. Make sure you know what the current assessed value and assessed taxes are, and have a good handle on what happens post-transaction. If you are paying more for the property than it's assessed at (independent of its actual worth), your property taxes could rise significantly.

2 years ago | like reply | 0 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.