Does selling your company mean selling the real estate too? In today’s market, you have many options to consider when deciding on whether to sell your commercial real estate property. Find out how you can leverage these two different assets.
Consider Your Options
Earning potential is the number one reason to lease real estate. The annual return on business properties ranges from 8-10% of the real estate value depending on the area. When markets are high and real estate values soar, like the current Central Indiana market, selling the property at a later date makes sense.
Some commercial properties are designated as special-use buildings, which means the highest value it can have is with the current business. Special-use properties pose a higher risk due to their limited allowance of business types. This means that your tenant could leave you with an empty building, likely unable to lease due to the extensive specificities of their business type.
Using a 1031 Exchange
Selling commercial real estate brings forth additional taxes. The gain on a real estate sale is taxed as capital gain, but it’s possible to work around this. The 1031 Exchange allows you to sell a piece of property, and reinvest the proceeds into a new property while deferring the income tax from the sale. When leveraged properly, a 1031 Exchange is a valuable tax savings and wealth preservation tool.
Selling the Property
Most buyers who are considering purchasing a business are also interested in purchasing the commercial real estate. At Transworld Indiana, we know buyers often back out of a sale if the real estate is not included in the purchase. Considering the current interest rates, a mortgage payment for commercial properties is about the same as renting the space. Today, there are dozens of commercial lenders with funds readily available for qualified buyers to purchase not only the business, but the real estate as well.
Third Party Options
When considering selling your commercial real estate property, there are many possible outcomes. An option to consider is selling the property to a third-party, who then leases the property back to a prospective buyer. Indiana business brokers know this transaction can be beneficial to both parties; you get the liquidity, and the buyer is free of a real estate obligation.
The decision to sell or hold your real estate while selling a business depends on many factors, most importantly, your long term financial goals. You will need to evaluate whether you are willing to invest in ongoing involvement, such as property management, after the sale of your business. If the real estate market is in a good place, now might be the time to sell.