You Own Your Property. That Doesn't Mean Your Real Estate Strategy Is Working.
Owning the real estate under your dealership is one of the strongest positions a dealer principal can be in. It provides stability, it builds equity over time, and it gives you control that leased operators simply don't have.
But I've learned something from 40 years of working with dealer principals across every market and franchise type: owning the property and having a real estate strategy are two very different things. And confusing the two is one of the most common and costly mistakes I see dealer principals make.
Most dealers who own their real estate haven't had a substantive conversation about it in years. The rent was set when the arrangement was established — maybe a decade ago, maybe longer — and it's been running on autopilot ever since. Nobody has asked whether that rent reflects current market value. Nobody has evaluated whether the ownership structure between the operating entity and the real estate holding entity is still optimal. And nobody has looked at whether the property is positioned to enhance or complicate a future transaction.
Those are expensive questions to ignore.
Rent alignment matters more than most dealers realize. If your rent is below market, you may be artificially inflating your operating profitability in a way that creates complications when a buyer normalizes it during due diligence. If your rent is above market, you are carrying an unnecessary expense burden that directly suppresses enterprise value every single month.
Ownership structure matters too. How your real estate is titled, how it is leased back to the operating company, and what the terms of that arrangement look like can either create significant flexibility in a future transaction or introduce complications that slow the process and reduce the outcome.
"The most common thing I hear from dealers when we start talking about their real estate is that they haven't really thought about it in years. It's just been there. But real estate decisions compound quietly — and by the time a transaction surfaces, the arrangements that were never examined become the ones that cost the most to unwind."
— David Melton, Founder & President, Melton Advisors
The questions every dealer principal who owns their property should be asking are direct: Is my rent aligned with current market value? Is my ownership structure creating flexibility or risk? Is my real estate enhancing my enterprise value or quietly suppressing it? And if a buyer came to me tomorrow, would my property be an asset in that conversation or a complication?
If you don't know the answers, that's exactly where the conversation with Melton Advisors should start.
David Melton is the Founder and President of Melton Advisors, a senior-led M&A and capital advisory firm serving automotive dealer principals nationwide.
423-421-2622 | dm@meltonadvisors.com | meltonadvisors.com