Okay guys, bear with me again . . . please. Give me your thoughts and be devil’s advocate. :twisted:
Our landlords had a meeting with us tonight and have offered to sell us the building and property. What they are asking is about $125000.00 less than what the property will appraise for.
3200 square foot, free standing building, huge parking lot on a main street and secondary highway.
Do you think we could get a loan, do you think we should consider it, do you think we are nuts to consider it?
You all know what we are thinking, borrow extra money to get ourselves out of the hole and then market like crazy . . . If we could get the loan.
let me ask how much is your lease?
how much would your lease be with a 30 year commercial
plus if it is a really really big parsal you may consider a land lease where another tenant can pay some of the loan
another thought is it gives your restaurant more value down the road if you need a loan to expand or upgrade
ok so If I remember you needed about 60K to get outta trouble right…if you get the property to appraise 125K higher couldn’t you use that “equity” to get your head above water? Considering you are in financial trouble, won’t it be difficult to obtain financing though?
I love your persistence, but I would be cautious to think that marketing is your cure-all
Buying the building should be the least concern right now. Your biggest concern is to get to profitability, and draw customers into your store, and paying down debt. You can worry about the building after you succeed on all of this. Your landlord knows your in trouble and looks like he wants to bail on the building. If you have some rich uncle to buy the building and give you a good rent then it sounds good.
My landlord inherited several buildings and land several years ago from her Father. The estate was huge and it has finally been settled. We wanted to purchase the building when we first bought the business but couldn’t until the estate was settled. It has always been their intention to sell the properties when the estate was settled.
On the other side of the coin, our landlord was wealthy at one time, but after all the estate stuff (and she likes to spend money), she is looking for some cash. That’s mainly the reason we can get the property for a lot less than it will appraise for. Yes, she is afraid of losing her renter, she also wants out of the hassle of keeping the taxes up, insurance, etc.
To answer other questions, yes the big question is if we can get a loan of that size and yes, we would use some of the equity to get ourselves out of the hole and have the money for marketing and working capital.
I’m not sure at this point what payment vs. rent would be, however, our rent is $2100.00, the other fixed monthly payments that this would cover would be to the tune of another $1500.00 for a total of $3600.00 a month. Not to mention getting us from the being behind on our bills and taxes.
What I’m reading from my support base here is that we’re probably just jumping out of the frying pan into the fire, right?
Well Gob I think the good news is your landlord is probably in a bind as well…giving us some understanding on why they offered a couple of months free until things get going.
I would take the next couple of weeks(months) to do persistant marketing. That would be my focus.
The difference between buying and leasing in this case is the landlord needs you as tenants for whatever reason and has been willing to work with you, the bank will not be so forgiving.
The only way I would think this would be an option is if you can use the equity as a down payment, seller pays all closing costs and your payment will be cheaper than the lease.
I don’t know if you own your own home but if you do…have you already borrowed against the equity? If no getting the loan might be an option.
since I dont know alot about your situation I have to say something in general
ITS A RISK, you can not take the risk and keep at your same rate or pace
Or you take the risk, and you fail,
OR you reinvest the equity, it turns around and is a landslide victory because after you do retire and sell your business you STILL recieve rent as well!
I have learned you really cant push forward with out some sort of risk
How much are you currently paying in rent and fixed expenses that you plan on rolling into this mortgage?
Find out what your payment will be and if you can get approved for the loan before you do anything else. I guess owner financing isn’t an option if the seller wants cash now, but if they are more scared of losing you as a tenant, you still might be able to swing a portion of the sale with owner financing.
I have read all about your victories and trials, and I applaud you for hanging in there and doing whatever it takes to make your business successful. You are open to new ideas and approaches, and you’re busting your butt to make more sales and win more customers. Excellent work!
I have been under the impression that you are struggling financially, or at least you were in the very recent past. This probably isn’t the time to jump into a building purchase. The financial conservative in me says to get the business on an even keel so you can rely on the cash flow from the restaurant operation. Then, if the building is still available (which it may well be!), think about buying it. A great deal on a building isn’t such a great deal if adds even more pressure to perform.
14 April - “Bill gave up a long time ago and we will probably close our doors Sunday night - we are flat broke.”
18 April - “Do you think we could get a loan, do you think we should consider it, do you think we are nuts to consider it?”
…in just 4 days???
If you were giving someone else advice based on your postings over the last 4 days what would you say? Please post your reply as I think you’ll find the exercise useful if answering you own question.
is your operation running a positive cash flow? Is your cash in exceeding your cash out? Are you currently meeting all your personal expenses?
Old expenses might be able to be set aside and dealt with, but if your operation is not doing more than break-even, you shouldn’t consider buying the property, unless that will dramatically impact your operations…
Run you biz for 30 days & see if you’ve got it under control, then look at the picture with a fresher perspective.
Why not buy the building for $125k less than what it’s appraised for, then sell it and try to make a $60k+ profit and get out while the gettings good ?
If you gave it your best shot there and still feel the desire to have your own shop, learn from your mistakes, reasearch a new area, create a business and marketing plan and start over.
If you can Buy it I say do it 200%.At least you will be paying yourselves rent and not her and building equity.LOL if you get reallly desparate for money just don’t pay your property taxes for a cpl years.It takes at least 3 to foreclose for that reason<(absolute final option)See if she will hold the mortage.
Derek
All I meant was that it takes all those things you mentioned and TIME to build up your sales…of course marketing will help speed things along…also I noticed great product, good staff…maybe you need to get the staff up to GREAT also because it is just as important as the product…maybe the location might be the problem…has a steady tenant ever been in that spot?
What is the commercial building market like in your area? Is there a possibility of a quick turn around on the building? Why would the owner sell below appaisal if it is a good market and things are selling? If things are not selling what good is an appraisal? The market will dictate the price no matter the appraised value.
I think we found out the reason today why our landlord is ready to sell and at such a low price - in fact we could probably get it even cheaper now that we know this little information . . . .
As you all know, the building next door is also owned by our landlord and she allowed another restaurant to move in. Today the restaurant owner came over to talk to me and stated that she was served with papers that the property they are leasing has been sold for taxes for the year 2003 and that our landlord has until August to pay the taxes. Our neighbor wanted to know if we got one - which we didn’t.
At this point, I think you are all correct - purchasing the building probably wouldn’t be a good idea even if we used the equity to get out of the hole. They are asking $175000.00 for the property and it appraised for $300,000 2 years ago. We actually talked with a bank today and they are willing to work with us. Property talks, equipment inventory doesn’t when it comes to a loan.
We’ve decided not to do it. Thanks for your help - Again!
Here’s the voice of recent experience. Ifyou do not have cash or other liquid assets to cover 6 months of expenses, plus additional liquid assets (not real estate, but cash, CD, stocks, retirment accounts, etc) of some substantial amount, your road to a bank loan will be a steep and difficult one.
We recently, about January, worked through three banks trying to borrow money to buy a space that has equity after purchase. They wanted to see our financials for three years, business returns and some other stuff. If your personal and business situation is as dire as we suspect, then the bank will likely be hesitant to give you a loan.
I ran sime numbers to find that a $265,000 mortgage for 30 years at 9% runs a payment of $2,132.25. That DOES NOT include takes, insurance, maintainence/repairs or any other esxpenses. 30 years is not really something any of the ban kers we spoke with wanted to do . . . . they leaned on 20 years. If you do purchase, do your math, your due diligence and look at the plat carefully before signing anything.
BTW, if you haven’t seen a certified appraisal done within the last 6 months, then “$125,000 less than the appraisal” is a flying leap of faith or hyperbole. Without an appraisla in hand, no one knows what it will appraise for. Another lesson I learned in my recent tribulations with our place.
Just information to help make the decision. I got no opinion which way you should go as the risk is yours, and I don’t really know your world. My world led me to a purchase agreement on an property with some issues . . . but it is the good deal in our town.