Business plus freehold explained: buying the shop and the dirt

Buying a business is one thing. Buying the business and the building it sits in is a whole other kettle of fish, but a pretty tasty one if you get it right.

You’ll see “business plus freehold” or “business + freehold” all over regional Queensland listings, especially workshops, roadhouses, motels and industrial businesses. Here’s what it means and what to watch for. General information only, so get proper advice for your own situation.

Two things in one sale

When you buy business plus freehold, you’re buying two separate assets:

1. The business. Goodwill, customer base, name, plant and equipment, stock, systems and staff (subject to the usual employment rules).
2. The freehold. The land and buildings. Real property, with a title, zoning and all the usual property checks.

They might be sold under one contract or two, and they might even be owned by different entities on the vendor’s side (the business in a company, the property in a trust or super fund, for example). That matters for how the deal’s put together, so sort it out early.

How each bit gets priced

This is where people get muddled. The two parts are valued differently.

• The business gets valued on its earnings and a multiple, the same way as any business. I’ve written up how to value a small business in QLD if you want the detail.
• The property gets valued like any commercial property. A market rent is set for the premises, and the value reflects what an investor would pay for that rent, checked against comparable sales.

Here’s the trap. A lot of owner-occupiers don’t pay themselves rent, or pay a mates’ rate. So the business profit looks fatter than it really is. Before you value the business, put a fair market rent through the books. Otherwise you’ll pay for the same dollars twice: once in the business price and once in the property price.

Have a look at a real example: our Townsville mechanic business plus freehold lists the business and the freehold at separate prices, which is exactly how it should be shown.

Why buyers like it

• No landlord. No rent reviews out of left field, no lease running out, no being turfed when the landlord wants the site back.
• Control. Want to put in a second hoist or knock out a wall? Your call (council permitting).
• Two ways to win. The business can grow, and the property can grow too. When you sell, you can sell both, or sell the business and keep collecting rent.
• Security for lenders. Bricks and mortar are generally easier to borrow against than goodwill.

Why it’s not all sunshine

• More money in. You’re tying up a lot more capital, and your deposit has to cover both parts.
• Two lots of due diligence. All the business checks plus all the property checks.
• You’re now the landlord. Roof leaks, fire compliance, insurance, rates. The buck stops with you.
• Harder to sell later? Maybe. A buyer who wants both needs deep pockets. But splitting them can widen the pool, which is a nice option to have.

The property checklist (don’t skip this)

Check the property as carefully as the business:

• Zoning and permitted use. Is the current use actually allowed? Can it expand?
• Building condition. Get a building and pest inspection, and check for asbestos in older sheds.
• Contamination. Workshops, fuel sites and industrial uses can leave nasties in the ground. Get it checked; it can be expensive to fix.
• Services and access. Power capacity, water, sewer, truck access, parking.
• Flood and cyclone. We’re in North Queensland. Look at the flood maps and the insurance premium before you fall in love.
• Title and easements. Anything on the title that limits what you can do?

Setting up a lease to yourself

Lots of buyers hold the property in one entity and the business in another, with a proper lease between them. That keeps things clean and makes it easier to sell one without the other later. How you structure it is a legal and tax question, so get the right professionals in early, before you sign.

Three mistakes I see a lot

Falling for the building, not the business. A lovely shed doesn’t make a weak business strong. Value the business on its own numbers first, and ask yourself whether you’d buy it if it came with a lease instead.

Ignoring the rent hole. If the current owner pays no rent, the profit you’re shown is flattered. Put a fair market rent through and see what’s left. If the business only works because it’s rent-free, you’re really buying a property with a hobby attached.

Forgetting the exit. One day you’ll sell. Think now about whether you’d sell both together, or keep the property and collect rent from the next operator. Structuring it cleanly from day one makes either option easier, and it costs a lot less to set up right than to untangle later.

Where you’ll find business plus freehold up here

Regional towns are full of them, because a lot of businesses grew up on land the founder bought decades ago. Check our business plus freehold page, the industrial property listings, and the town profiles for Charters Towers and Normanton, where owning the dirt is common.

The short version

Business plus freehold can be a cracking setup: no landlord, two assets, more control. But you’re buying twice, so check twice. Value each part on its own, put a fair rent through the books, and get the property inspected properly.

Looking at one, or thinking of selling yours with the property? Give me a call and we’ll talk it through. No hard sell, promise.

Frequently asked questions

What does business plus freehold mean?

It means the sale includes both the operating business and the property it trades from. You buy the business (goodwill, plant, stock) and the land and buildings, usually under two contracts or one contract with two parts.

Can I buy just the business and lease the freehold?

Sometimes. Some vendors will sell the business and keep the property, with a new lease to the buyer. Others will only sell both together. Ask early; it changes the deal a lot.

How is the freehold valued?

Usually on a market rent and a yield, like any commercial property. A fair rent is set for the premises, and the value reflects what an investor would pay for that rental income, checked against comparable sales.

Is it harder to finance business plus freehold?

It's different. Property is generally easier for lenders to secure against than goodwill, so the freehold part can help. But the total amount is bigger, so you'll need a bigger deposit overall. This is general information only; speak with a licensed credit professional.

General information only. This isn't financial, credit, tax or legal advice and doesn't take your circumstances into account. Get advice from a licensed professional before you act.