Entrepreneurial Investments in Real Estate

The realm of business planning and entrepreneurship involves a great deal of avenues. It involves marketing, recruiting, resource allocation, resource leveraging, and even financial planning. But in a difficult economy, how can businesses plan effectively? One avenue, which businesses can turn to is real estate.

Real Estate as a Business Asset

Many entrepreneurs take on real estate as part of their business operations. This is because real estate grows in value over time and has proven to be a good source of income for entrepreneurs to grow their business. It also ensures long term growth and development for entrepreneurs and businesses regardless of business size or industry.

Entrepreneurs don’t necessarily have to invest in office space real estate to capitalize on rental income—they can also purchase residential real estate. Entrepreneurs can use this as office space as well, or they can rent the space out to tenants as a portion of their business operations. However, it’s important for businesses and entrepreneurs to ensure that a portion of their operations is involved in private residential real estate for tax purposes.

For those entrepreneurs who are looking to incorporate real estate investments into their business services, they can get involved in service selling, which involves offering and selling a piece of real estate whether that is a hotel, restaurant, or entertainment location. This is a way for businesses to invest in real estate as well as provide a service.

Why Real Estate Fits the Entrepreneurial Playbook

Real estate is no doubt a crucial element to the overall growth, development, and success of any business in any industry. In fact, many entrepreneurs believe that providing a service or infrastructure is very important to business survival. That infrastructure should also employ a good team, and a business should also invest in training, support, and professional development so they recognize and understand the importance of running and managing a business, which will only enhance a business’s success and survival.

Another important element to investing in real estate is culture. What does culture have to do with real estate and running a business? Although the two don’t seem to correlate with one each other, the truth is that culture is important in any organization, regardless of business size, industry, or service. Training a good staff and ensuring a good and positive culture will ensure that staff members and team members will treat a business like it’s their own.

All in all, entrepreneurs want to instill a “I can do it” attitude amongst themselves and their staff. This attitude will carry through any business, even in businesses which invest in real estate, or real estate that eventually leads to providing a service. This gives a clear message across all team members and stakeholders. So regardless of whether a business operates in an office, provides an entertainment service, or even rental property, real estate is an essential investment.

It also ensures business growth and development over the long term. As we’ve seen, culture is also closely tied to any investment, operation, and service provided to customers and stakeholders.

Real Estate as Part of a Broader Capital Strategy

Entrepreneurs who hold real estate as a business asset need to think carefully about how that asset fits into their overall capital strategy. Real property can serve as collateral for debt financing, provide a vehicle for equity extraction, or become a significant line item on a buyer’s balance sheet when the time comes to sell. Understanding how lenders view real estate on a business’s books—and how buyers will value it in a transaction—can meaningfully affect your exit options down the road.

For entrepreneurially-minded investors who focus on a specific niche, sub-sectors like self-storage have attracted meaningful institutional attention in recent years. Exploring M&A and VC trends in self-storage real estate illustrates how specialized property types have evolved from mom-and-pop holdings into sophisticated investment platforms that attract private equity and strategic buyers alike.

When a business owner eventually decides to exit, the presence of real estate in the business can either simplify or complicate the sale. Buyers often prefer to purchase operating assets separately from real property, which means structuring a transaction carefully matters. Understanding what to do with business real estate when selling a company can help you avoid leaving significant value on the table or, conversely, creating a structural impediment that slows down a deal.

If your business is in the real estate services sector—property management, brokerage, development, or related disciplines—the transaction dynamics are somewhat different. Reviewing the considerations around selling a real estate operating company provides useful context for how acquirers typically assess these businesses and what metrics they care most about. If you’re closer to a development-focused model, the parallel considerations for selling a real estate development company are worth understanding early.

Ready to think through how your real estate holdings fit into a broader transaction strategy? Start preparing your transaction with a clear picture of all your assets in place.

Frequently Asked Questions

Should entrepreneurs keep real estate inside the operating business or hold it in a separate entity?

Most advisors recommend holding real property in a separate entity—often an LLC—that leases space back to the operating business. This structure separates liability, simplifies a future sale of the operating company, and provides additional estate planning flexibility. The specific structure depends on your tax situation and long-term goals, so consultation with a CPA and legal counsel is important.

How do lenders typically view real estate owned by a small business?

Lenders generally view owned real estate favorably as collateral, particularly when it is unencumbered or has significant equity. However, they also scrutinize whether the business is overly capital-intensive relative to its revenue. If a business’s balance sheet is dominated by real property rather than income-producing operations, some lenders may have a narrower view of credit capacity for working capital or growth purposes.

How does real estate ownership affect the valuation of a business at exit?

Real estate is typically valued separately from operating business goodwill. A buyer may value the operating business on an EBITDA multiple basis and separately appraise the property. In many transactions, the seller retains the real estate and enters into a long-term lease with the buyer, creating ongoing income while simplifying the deal structure. Each situation is different, and the optimal approach depends on the buyer’s preferences and the financing structure in play.