I have the opportunity to buy an old motel that is currently being run as month to month rentals. Cost is $1m and grosses about $300k-$350k per year. As for me...I have great credit (800 fico) but little cash (about $40k) Owners are flexible though and may carry much of the downpayment. So would a lender even touch me with so little cash in the deal?
@Joel Owens and I were just discussing this. Is it possible for the seller to finance the entire deal?
I wouldn't care about the gross but the NOI.
I learned many years ago with businesses I owned it's what you have left over and how hard you had to work for it.
I like models where the profit is large compared to the amount of sales generated. A high volume sales business to generate thin margins you can start losing money very quick if even the slightest changes happen.
For instance a restaurant that clears 100k profit off of 400k in sales versus 1 million in sales.
Yes owners like to look poor on paper which is why when reviewing this motel you would take customary (add backs) off the expenses. Things like retirement plans, dental, medical, etc.
I don't see the owners floating you most of the financing with only 40k unless you have other properties with equity you can put on the line. A regular lender you would not have the liquidity or net worth to get approved by yourself. You could bring in a possible partner but would have to give up some equity and cash flow.
I have seen lenders offer (and close) on loans up to 80% CLTV but that still leaves 20% that you or other equity contributors must provide.
I know of an equity investor on commercial deals (again) but they have to be great deals and the General Partner must contribute an equal or greater amount.
Can you find other equity contributors that can provide $150,000 to $175,000?
Don't really want to add a partner if I can help it. What about some kind of lease option? Option it for say $20k, pay the owners $6k per month for a few years, and then do some kind of refinance to cash them out?
would u be willing to give all net profit to owner as a deferred down payment? Sweat equity, take no profit and no salary?
Whats the net off the P&L?
I specialize in commercial real estate financing and Adam F., is right on target. One of the first things we look at is the P&L and if the property will debt service.
@Andrew N. There are great programs in the market place now to assist with a non-brand hotel/motel. You will have to be involved in the day to day operation. The seller can contribute up to 20% as a carry-back.
Max LTV 75%
Or consider going SBA, but plan on a long underwriting process through this program (6-8 weeks)
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