Selling the business and the real estate: together, separately, or leaseback

For many family funeral homes, the building is worth as much as the business inside it, and sometimes more. That makes the real estate decision one of the largest choices in the sale. It deserves its own analysis, done before you talk price with anyone.

This guide gives an overview of the three structures, how each is appraised and financed, and how each is taxed. For the year-by-year comparison of rent against a sale, see selling the real estate vs. leasing it to the buyer. For the full sale process, start with our guide for sellers.

What are the three ways to handle the building when you sell?

You can sell the building and business together to one buyer, sell them separately to different buyers, or keep the building and lease it to the buyer. Each one changes your cash at closing, your risk after closing, and who can afford to buy.

The “typical buyer” row reflects our experience, not a survey. Buyer preferences differ; the Buyer-Fit Matrix lets you score real estate alongside your other priorities.

When “separately” beats “together”

The separate sale is the least discussed option. In a 2025 Memorial Business Journal piece summarized by Funeral Director Daily, Glenn Gould and Jake Johnson argued that small firms often sit on valuable main street corridors, and that owners lose value when “the value of the real estate eclipses that of the operation and the two are bundled together.”

In that case, a neighboring firm may buy the goodwill and records and serve families from its own building. The property then goes to a retail, medical, or office buyer that pays for location, not for a chapel. It works best in town centers where a nearby firm can absorb the calls.

How is the real estate valued apart from the business?

Separately, by a real estate appraiser, and lenders will not let a strong building cover for a weak operation. The business must support its own price from its earnings.

Under Appendix 15 of the SBA’s SOP 50 10 8.1, the “Business Purchase Price” excludes owner-occupied commercial real estate. The lender removes the appraised value of the property from the contract price. A qualified business appraiser then values what remains, and any amount paid above that valuation “must be made up by equity.”

That rule cuts both ways. Price the building too high in a combined deal and the business share looks smaller; price it too low and the goodwill must carry more of the price than the earnings support. Funeral homes are specialty buildings, and appraisers often lack funeral-use sales to compare. Our guide to valuing funeral home real estate explains the methods, and how much your funeral home is worth covers the operating side.

How does each structure change the buyer’s financing?

A combined sale lets an SBA buyer stretch part of the loan to 25 years. A leaseback lowers the buyer’s cash at closing but adds rent. Either can work; they just produce different monthly numbers.

The SOP allows a combined business and real estate loan to use a blended maturity: only the real estate portion may amortize beyond 10 years, up to 25. A whole-loan 25-year term is allowed only for special-purpose property when 85% or more of project costs are real estate. Buyers can also finance the building through the SBA 504 program. The SOP lists “funeral homes with crematoriums” as special-purpose property under 504, which raises the borrower contribution from 10% to 15%.

If the buyer leases, the lender will read your lease closely. The SOP says the lease term, “including renewal options exercisable only by the Borrower,” should equal or exceed the loan term. Expect requests for a landlord’s waiver and a collateral assignment of the lease as well.

How is each structure taxed?

Selling the building now triggers real estate gain at closing; keeping it defers that gain and turns the property into rental income. The right answer depends on your basis, your age, and your estate plan.

When you sell, part of the gain from depreciation you took on the building is “unrecaptured Section 1250 gain.” IRS Topic 409 says that portion is taxed at a maximum 25% rate, and the rest of a long-term gain at capital gain rates. If you want to stay in real estate, the IRS like-kind exchange guidance confirms Section 1031 now covers only real property, so the building may qualify even though the goodwill cannot.

Keeping the building has an estate angle. Under 26 U.S.C. § 1014, heirs who inherit property generally take a basis equal to its fair market value at death. For an older owner with a low basis, that can make holding and leasing attractive. Rent is taxable income in the meantime. Talk with your CPA and estate attorney before choosing; the numbers vary too much to generalize.

What should a seller who keeps the building insist on?

Treat the lease as a second sale contract, because your income depends on it for years. Write these protections in before the LOI is signed:

1. A personal or parent guaranty. An operating company with no other assets is a thin tenant.
2. Triple-net terms. The tenant pays taxes, insurance, and routine maintenance; define who replaces the roof and the HVAC.
3. Environmental covenants. The tenant follows prep room and crematory rules, and an exit inspection checks the property when the lease ends.
4. Rent escalations. Fixed steps or an index, so a 15-year lease does not erode.
5. A purchase option or right of first refusal. Set the price formula now, so a later buyout does not become a fight.
6. Assignment limits. If the tenant sells to a consolidator, you approve the new tenant or the guaranty stays in place.

Environmental history also stays with the owner. The SOP lists death care services (NAICS 8122) as an environmentally sensitive industry, so an SBA buyer’s lender must start with a Phase I environmental review regardless of loan size, unless no embalming or cremation happens on site. If that report finds an old fuel tank or a drain problem, you own it as landlord. Consider ordering your own Phase I before marketing, so you learn about issues on your own schedule.

Remember, too, that a building designed for funeral use has few other tenants. If the operator fails, re-leasing can take a long time. Our situation guide on keeping the real estate walks through that risk, and an illustrative operations sale with a leaseback shows the full math.

Which structure fits your situation?

Choose based on what the money must do for you after closing. Price matters, but it should not be the only factor.

• Sell together if you want a clean exit, have no family members who want to be landlords, or the building needs major capital work soon.
• Sell separately if your property sits on a valuable corridor, your call volume is modest, and a nearby firm can serve your families from its own building.
• Lease back if you want steady income, have a low tax basis, trust the buyer’s operating plan, and can live with a single-purpose tenant.

Many owners start with “keep the building” and change their minds after seeing the lease terms an SBA lender requires. Run all three structures early, with real appraisals, before any buyer anchors the conversation.