F
or collision repair business owners, owning the real estate where their enterprise operates can significantly boost its value. This is particularly true when it's time to sell, as they become the landlord for the buyer. Focus Advisors explains that if a seller decides to hold onto the property, they'll enter into a long-term lease with the buyer, typically triple-net (NNN) and amounting to 5% or 6% of their last twelve months' sales.

    However, Beth Rutter, president of Rutter Commercial Real Estate, cautions that negotiating leases based on sales can be volatile. Instead, she advises focusing on the property's value as a long-term investment. Collision repair facilities require unique spaces with specific zoning requirements, making them attractive to various businesses beyond just collision repair shops.

    The greatest benefit for owners who own their real estate is avoiding landlord issues and having more control over transactions when selling or handing down the business. Focus Advisors notes that commercial real estate value is based on net operating income and capitalization rates, with credit-worthy tenants creating more value due to lower cap rates.

    Rutter advises selling the business to the right buyer first, then exploring property sales once the lease is signed. This approach allows owners to maximize their returns while minimizing risks. Focus Advisors also highlights the importance of diversification when exiting the business, as owning real estate can help spread risk and increase overall value.

    Owning real estate can also facilitate financial growth through borrowing against equity to finance acquisitions or develop new sites. Large consolidators often don't own their properties due to differing risk profiles between businesses and real estate investments. Real estate ownership provides tax advantages, such as reducing corporate taxes by paying above-market rent.

    Ultimately, Focus Advisors emphasizes that real estate should be a key consideration in any growth strategy for collision repair business owners, offering benefits like borrowing, tax advantages, operational flexibility, diversification, and cap rate compression.