Valuing a deal with real estate included in it

by a searcher from Purdue University

1 year ago

Hi there, how do you normally approach valuing a business where real estate is a component of it?

I'm currently approaching it by finding what the business is "paying" for the real estate (through a lease to the LLC that owns the land which is owned by the same) , then using that amount as a perpetuity and a target interest rate to figure out the value to assign to the land. I then take that value and add it to what I'm valuing the business at (with an EBITDA multiple)

Is that on the right track or should I be looking at it in a different way?

4 likes
186 views
24 comments

lender from California State University, Sacramento - College of Business Administration

If you’re thinking sba lending, the business cash flow has to afford the business and the real estate. Value separately. If the business seller has under expensed a market rent, that could impact your ability to afford the business alone let alone the real estate. Market rate rent adjustments have to happen a lot in LMM acquisitions regardless if the real estate is part of the offering. Make sure the real estate make sense to acquire from the business operations perspective.

1 year ago | like reply | 0 likes

searcher from Western Michigan University - Haworth College of Business

^Searchfunder member‌ I'm in commercial brokerage and happy to help you gauge the price of the property. I've found that often the business brokerage values are often way off (low and high, but usually too high).

Be cautious in contacting brokers for BOVs for two reasons.

1 - you'll be tipping them off that there's potential opportunity and they may start contacting the property owner directly with other offers
2 - Need to research which brokers really know that market and product type. Having been in brokerage, 90% of brokers are goofballs and have only had recent success because the market has been hot for so long. The good ones will shoot you straight and be genuinely helpful, just takes a little work to find them.

Happy to help, send me a DM if you'd like to chat more.

1 year ago | like reply | 1 like

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

What are market terms for Seller Notes?

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

Sorry, but you are a broker's worst nightmare ... and how to fix it

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.