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A financial expert for auto repair likes the idea of including land in the deal when looking to buy an auto repair shop.
During the session Transitioning Your Business at the Midwest Auto Care Alliance’s Vision Hi-Tech Training & Expo in Kansas City, attendees were informally asked if they prefer the land in a sale. Most said yes, while others said it depends on the deal.
Hunt Demarest, accountant and business valuator with accounting firm Paar Melis, which deals exclusively with the automotive aftermarket, can see why some may not want it due to the added financial investment needed. But if you can afford it, he recommends it just based on the return on investment.
For example, say the shop is worth $1 million and so is the land. He sees that as a better deal than spending $1 million on two shops and leasing.
Look around, Demarest urged, there are fewer shops around. Shops are being forced to close so the land owner can develop it into condos, for example.
And if you want to move locations and build on a new piece of property, good luck getting a permit.
“You go in there and say, “Hey, I’m going to build a building, I’m going to build a shop here. They’re like, ‘The hell you are. We’re not going to give you a permit for it.’ They don’t want shops,” Demarest said of municipalities.
So owning the land means your shop won’t be forced to move or close down. He’s had clients who’ve leased the land for 30 years but the landowner suddenly dies. The kids take ownership and want nothing to do with being landlords. Or the landowner is pressured by the municipality to sell the land.
“You’re controlling your own destiny if you own it,” Demarest said.
He also recommended to never do a deferred deal on real estate — or really anything — calling it a lose-lose for the buyer and seller because you never know what the market is going to do.
If you value the real estate today at $800,000 for a deferred purchase and the value doubles, then what? The buyer won’t exercise their right to buy it at the higher cost; conversely, if the land is now $600,000, the seller is not going to want to follow through on the loss.
“So deferred sales, real estate, leave it out there,” Demarest recommended. “Hey, you can get it in five years, whatever the fair market value is. Don’t play the games with it.”
