Ray,
Thank you for your attention to this matter. I have read the material from Terry Vaughan’s site. I am wondering if there is a “no money down” purchase possible here?
We had been figuring the SBA loan for the frame shop (and possibly being able to buy the building with it), but didn’t know about the 50% of revenue requirement. So, I am wondering if the SBA would allow a partnership for the purchase of the building? That way, with a 50/50 partnership, the frame shop would only need to come up with a quarter (50% of 50%) of the overall revenue, correct?
My realtor informs me that this seller is very motivated, he is 72 years old and wants to move away from the town. He and his wife now live in the appartment in the building. His realtor provided me with a two year old appraisal using 3 approaches:
Cost approach; (land is 17,500 of value) $206,484.00
Sales comparison; 3248SF x $60.00 = $194,880.00
Income approach; $1950.00/mo or $23,400.00/yr
Owner has $104,000.00 outstanding on loan. If SBA allowed partnership purchase of building, I could ask offer the owner a partnership with an offer of $208,000.00 including frame shop equipment and stock. He using his equity as his share, and we assume $104,000.00 on SBA loan, manage the building, pay him his rental share, and then purchase the building from him after 2-5 years (once the shop began producing income.
I have good possibility of getting another partner if owner balks. also, I have good chance of getting $1000.00 per month rentals under contract prior to purcase. This is other than frame shop or pizza shop. By the way, good call on the pizza shop, I am not certain that I want to do that.
Am I way off base here, or does this plan hold water?
Thanks, Dennis
Hi,
I’m a super newbie. I recently visited a wonderful small town in Montana. There was a 3400 sq/ft gas station which had been tastefully converted into a classy 2 bedroom apartment, and two shop/office spaces (one is a frame shop that belongs to the owner). There is a full drive-in basement (3400 sq/ft). The owner is asking 234,000, and has an outstanding bank loan of 105,000. He is also selling the complete frame shop (equipment and inventory, not the business) for 15,000. Property has been on the market for two years.
Apartment will rent for 500, basement storage will bring 500-600, (I may be able to get signed contracts for renting both). My wife can run the frameshop (5 years prior experience), and I’m wanting to do a pizza shop (no prior experience) in the other space. Getting the two businesses off the ground will eat everything we own, so have no down for the building.
I am thinking of asking for a lease option, but am not certain if owner is willing. Any other options?
Thanks, Dennis
Re: Small town, commercial converted buildiing - Posted by ray@lcorn
Posted by ray@lcorn on April 21, 2003 at 07:21:42:
Dennis,
You’re going to have to feel out the owner and find out what his/her motivations are. Deals like this almost always involve some form of seller financing. L/O is just one of several alternatives. SBA financing may also be available for the deal as long as at least 50% of the revenue comes from the businesses and not the rents.
First though, you will need to do some legwork and verify the value of the property. My guess is that comps will be hard to find, and valuation based on the existing income is going to be difficult because of the owner occupied business. Since the property has been on the market for two years I would think that the owners would have a pretty good idea that it is overpriced, and perhaps be willing to deal? That’s what I mean about motivations… you’ve got to know what the seller needs. You may want to read Terry Vaughan’s “Sixty Second Real Estate Course” to spur your thinking about how to structure an offer. It can be found in the articles section of the website, or the direct URL is http://www.creonline.com/articles/art-040.html
Have you thought about breaking the deal into pieces? Assuming the value question is answered satisfactorily, then you could approach the deal as tenant first, then as a buyer. Buy the frame shop perhaps with an installment arrangement and a lease on the space. Build an option to purchase into the lease. Get that up and running and producing profit. Then tackle the pizza shop (are you sure you want to do that?) the same way.