Evaluating the Real Estate in a Business Purchase: Why the Lease or Property Could Make or Break the Deal

When buying a business, most people get laser-focused on revenue, expenses, employees, and customers. But there’s one factor that can quietly make or break your deal: the real estate.

Now, before you picture yourself in a hard hat flipping through blueprints like you’re on HGTV, let me clarify: I’m talking about the lease (in most cases) or the property itself (in fewer cases). Either way, you can’t afford to treat the real estate side of a transaction as an afterthought.

In fact, if you ignore it, you might end up with a fantastic business…that you can’t operate because the landlord decided to double the rent. And trust me, it’s hard to sell a million tacos a year if you don’t have a kitchen.

Why Real Estate Matters in Business Acquisitions

The right location drives everything, customer traffic, visibility, parking, employee commutes, and even how much the business is worth. A neighborhood bakery tucked into a cozy strip mall has a very different future than one stuck behind a warehouse next to a tire dump.

Even if the real estate isn’t part of the sale, the lease terms absolutely affect the value of the business. And when the real estate is included? Congratulations, you’re actually buying two separate things: the business and the property. Think of it like buying a car and the garage it’s parked in. Both matter, but they’re valued differently.

Lease vs. Ownership: The Fork in the Road

Leasing (most common in small business sales):

• Less upfront cash required.
• More flexibility if the business outgrows the space.
• But…you’re subject to the whims of your landlord

Ownership (less common, but powerful):

• You control the long-term destiny of your location.
• You build equity and stability over time.
• But…it requires more capital, more financing, and you suddenly become both entrepreneur and part-time property manager.

Bottom line: Most small business buyers will inherit a lease. Which means you’re going to have to win over not just the seller but also the landlord, and some landlords treat lease approvals like auditioning for “Shark Tank.”

Valuing Business and Real Estate Separately

If you’re buying both the business and the real estate, here’s rule number one: value them separately.

• Businesses are valued on cash flow multiples (SDE or EBITDA).
• Real estate is valued on comps, appraisals, or income capitalization.

Mixing the two is like trying to figure out the worth of a cheeseburger by adding up the price of the bun and the cow. Doesn’t work.

In fact, many deals are structured as two separate transactions: one for the business, one for the property. This makes financing cleaner (since lenders treat the two assets differently) and can also create tax advantages. Your lender, CPA, and broker will all thank you for keeping things organized.

Lease Due Diligence: The Fine Print That Matters

If you’re buying a business with a lease, the devil is in the details, and those details are usually hidden somewhere in the fine print. Things to look for:

• Assignment clause: Can the lease be transferred to you as the new owner?
• Renewal options: Do you have the right to stick around, or is your business on borrowed time?
• Rent escalations: Will your rent jump faster than popcorn in hot oil?
• Personal guarantees: Are you tying your personal finances to the lease? (Spoiler: usually yes.)

Don’t just skim. Read carefully. And if the lease reads like it was written by Tolstoy, bring in an attorney.

The Power (and Risk) of the Landlord

Let’s be real: landlords hold a lot of power in these transactions. Some are cooperative partners. Others…see a pending sale as their chance to “renegotiate” (translation: raise rent).

That’s why buyers should:

• Engage landlords early.
• Present themselves as financially sound and reliable.
• Lean on advisors to negotiate lease assignments or renewals.

Because nothing says “deal breaker” like a landlord who refuses to approve your lease transfer.

Financing and Lease Implications

Here’s something most buyers don’t realize until it’s too late: lenders scrutinize lease terms almost as closely as your tax returns.

• SBA lenders typically require a lease term that extends beyond the loan term.
• If the lease is too short, too expensive, or too vague, financing can collapse.
• If you’re buying both business and real estate, lenders will split underwriting between two different asset types.

Translation: If you ignore the lease, your financing could vanish faster than free pizza in an office break-room.

Don’t Go It Alone

Leases and real estate aren’t DIY projects. You need:

• A business broker to coordinate between buyer, seller, landlord, and lender.
• A real estate attorney to review the lease and catch hidden traps.
• A CPA/tax advisor to help structure the deal (especially if there’s property involved).

It might feel like an extra cost up front, but compared to losing your deal (or overpaying for bad terms), it’s the best investment you’ll make.

When buying a business, it’s tempting to focus only on the numbers, revenue, expenses, profits. But the real estate side of the deal can be just as important.

• A strong lease creates stability.
• A weak lease introduces risk.
• Buying real estate along with the business can be a smart move, but only if you value and structure the two assets separately.

Remember: you’re not just buying a business. You’re buying the right to keep it in the space where it succeeds. And that makes landlords, leases, and property terms some of the most important details in the deal.

Pro tip: Don’t fall in love with the business until you’ve made peace with the lease.