Creative ways to get the deal done!

[Elliotte]

I am looking at yet another guesthouse. So far for this one DD is stacking up far better than the other projects I've been offered or other places I've looked at. However it will def need a commercial loan with at least 20% deposit + costs which will wipe out all my cash. I would just get over the line at the asking price of $670K.

Now it seems the actual building itself might be only worth say $550K. So I might only be able to borrow 80% of that. Valuation pending. The other amount the owner wants is for all of the furniture and whatever else goes with the business. So possibly $120K. Seems far too much for crap furniture for a hovel of a place so of course I will inventory everything and try and work out a reasonable second hand value for the lot.

But given I wouldn't be able to lend on any of the furniture I imagine any ideas on what I could offer to get the deal done? Payment plans for the furniture after settlement of the property? Or I settle the property and let them keep going for a certain amount of time rent free to me to pay off the furniture? Any one done anything like that? Or could I just offer to buy the building and the business but none of the junk? I'm not sure I'd want fifty year old mattresses and I could probably outfit the lot for much, much cheaper myself and start fresh.

 

[Scott No Mates]

Eliotte there are two elements to consider:
1 what is the property worth; &
2 what is the business worth?

 

[Scott No Mates]

Are you paying for goodwill or purchasing with vacant possession?

 

[Elliotte]

At this stage they seem to indicate it was no goodwill. They wanted to do it as a straight real estate deal. But when I start down valuing the property the estimate so far on that may be 500-550K. So then I was like, well, what's the inventory...and that where they are now saying the other value comes from to bring it to asking price of $670K.

Now I will start to do inventory or ask for one but I can't imagine existing things that go with the guesthouse to be worth much at all. So I think there is an element of them padding it out to try and then get either goodwill or an amount for the existing business. But I wish they'd just unpack those figures themselves and be a bit more upfront about how they worked out the mysterious $670K figure.

The business does have a high turnover, or it did, and of course I will get records to verify their claims soon, but it seems like it is now being run into the ground somewhat - less than 50% occupancy, as low as 30% at times and only four bookings for the next year lol. No active promotion of the place, no marketing, no website. So as a business it's not really worth much I'm guessing - maybe a few feral longer term people in some rooms rusted on.

 

[Peter_Tersteeg]

You won't get finance over second hand furnature (at least not at home loan rates or even close). You can't include this in the costing of the purchase and if you want to go down this path make it a separate contract from the property purchase.

I've also observed that many people selling a business (as opposed to real estate), ask way too much for it.

 

[Elliotte]

Yes, I've already flagged it with them that I'd need make two offers - one a real estate offer and one would be an offer for their Ikea rubble. Actually probably not even Ikea standard. But since that will be so low I imagine that's when they might dig in and then say the rest of the money is goodwill or business purchase. We'll see. I won't be able to give them much goodwill if I buy the property as I'll be wiped with real estate deposit. So will have to get creative - pay it off to them or something if everything else stacks up for the deal. Or any other creative suggestions.