I want the business not the building
September 11, 2021
by a searcher from University at Albany, State University of New York - School of Business in Poughkeepsie, NY, USA
The initial terms for the business are right where I want them to be. But, the owner "Would really like to sell the business and building together..."
Can I do it? Yes. And, the value of the building + business is still in line with the multiple I wouldn't exceed for the business. But, I just don't want an old building that needs work in an area that has no signs of an uptick.
What are you doing?
How are you adjusting terms?
Any suggestions are more than welcome.
BUILDING; is a home being used as an office on the first floor. Second floor is used as storage. A separate building is being used as a 1 bedroom apartment and has a 7 year tenant. Also has an oversized 2 car garage.
from University of Southern California in North Palm Beach, FL, USA
Unless you have a good reason to do so, it is usually not wise to purchase the business’ premises at the time you buy the company.
There are two issues involved here. What is the worth of the real estate and who should own it? The seller should obtain an impartial M.A.I. appraisal. In most situations, you should not buy real estate that is the site of the business you purchase. One reason you don’t want to own the real estate is that its debt service will eat your cash flow, and the promissory note or mortgage will adversely affect your balance sheet. Moreover, if things go wrong it’s better to be delinquent on rent due to somebody else. Don’t tell the seller upfront you don’t want the real estate. Later, when you negotiate for the business, show the seller why it is smarter for him to sell the real property to a third-party investor from whom you lease space. This can be a simple item to arrange if you properly communicate it to the seller.
You can purchase a much larger and safer company if you use your money to buy the business, period.
Encourage the seller to find someone else to buy the real estate. If real estate investors are not interested in the property, does it mean they are concerned about the business’ capability to pay rent? What does that tell you about the business opportunity?
On the other hand, ignoring for a moment the down payment requirement, some buyers buy the real estate if the mortgage payment is less than the cost to rent the property and/or to accumulate real estate equity while paying down the mortgage.
Depending upon the deal, obtaining deal financing can be easier when the real estate is included. Most banks love what they deem good real estate. They can roll the business and the real estate into a 15 to 25-year loan, making the overall payments much less than 10-year financing on the business only.
from University of Southern California in North Palm Beach, FL, USA