Real Estate Considerations When Buying a Business

Location can be a primary consideration when purchasing a business. Unless you are planning to operate a business from your home or your own office, you will need to review the location of the business, analyze the current lease, or buy the real estate along with the business.

Most businesses rent their space. Many business buyers choose to lease their space, because of the large cash outlay (usually 15 percent to 25 percent of the purchase price) required to purchase the real estate. Most business owners would rather commit that money to the actual business rather than the office space or the building in which the business is located.

When leasing space for your business, first research rental costs in your area. Do some research beforehand to get an idea of what the average per-square-foot cost is.

Beyond the rental cost, you will need to have a lawyer review the current lease (in the case of a transfer) or help you negotiate a new lease. Either way, the terms of the lease are closely tied into the purchase of the business. If the terms set forth by the landlord make it impossible to continue to run the business profitably in its current location, you will need to renegotiate the lease, find a new location, or walk away from the business opportunity altogether. Businesses are often for sale because the current owner can no longer afford the rent or meet the terms of the lease.
Other key considerations when negotiating your lease include:

  • Anticipating growth. Before you sign any lease, think about where your business might be toward the end of the lease term. If you expect your business to grow dramatically, you will want either a short term lease, allowing you to move as you need additional space, or the option of renting additional space. additional space.
  • Common area charges. You may have to pay for the maintenance of common areas, such as garbage pickup and repairs. Review these costs carefully to determine what you are and are not responsible for and how much these charges will be.
  • Type of rent. Are you paying a fixed rent or one based on a percentage of your profits? Tread carefully here. What are the frequency and amount of the rental increases? Find out what is the norm for businesses in your area, and have your lawyer carefully review this section of the lease.
  • Tenant improvements and repairs. Find out what improvements, including signage, are allowed and which are not. Additionally, you need to know who is responsible for making repairs — you or your landlord.
  • Renting and subletting. If you are not utilizing all of the space you are renting or leasing, can you sublet it? Are there specific terms? These are important questions to answer.
  • Competing businesses. Most frequently found in the leases or negotiated into the leases at malls, and often in other locations, is a clause that assures you that the landlord cannot rent to your direct competitors, or a similar business, within a certain distance of your location.
  • Parking and access considerations. Is there adequate parking for your customers? How easy will it be for them to get from their cars to your shop?

Just as important as looking at the rental cost are the terms that go along with the lease and the landlord behind those terms. If you find it too difficult negotiating with the landlord, maintaining a business on his or her premises may not be right for you.

Of course, buying the real estate opens a whole new subject, and you will need to determine the value of the property. You will need to have the real estate appraised and consider the entire package — the business and the real estate — before making a decision.

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