I'm looking at a company that is for sale with the real estate included. It is all part of one entity, he owns the real estate outright and is not currently paying rent to himself or any other entity.
Assuming I would use the SBA 7A and 504 products, what is the correct way to model cash flow in this scenario? If I add in a market rent expense and include the real estate cost in my debt servicing, wouldn't I essentially be paying twice for the real estate?
Thanks,
Ken
Rent Addback when purchasing real esatate
by a searcher from University of Massachusetts Amherst - Isenberg School of Management
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1) Think as if, you are buying two assets, a) the business that pays rent X and expenses it, and b) the building that has rent income of X. Run pro-forma and ROI for both.SBA will finance each. The business loan will be, say 10 yrs amortization, the building loan 25 yrs
2) Depending on the the size of the building loan, it may be possible to combine the two loans into one. This will result in the business loan amortized over a longer period. P+I of this one loan will be lower than the P+I of the two loans discussed above.
Happy to talk other pro/cons.