We have a seller that is willing to get as creative as possible with seller financing, lease option, or whatever it may be. Outside of that we are trying to see if there are any other creative financing ideas that may benefit all of us even more. The purchase price is about $2M and the seller is willing to carry about half.
We would like to close on it however that works out so we can depreciate it. We've tossed around a lease option but would need the property tax savings to outweigh the depreciation.
All ideas are much appreciated. Thanks.
Need more particulars, but will throw out some ideas.
1. Don't buy the business, buy the assets. Again don't have enough info from above.
2. Cost Segregation, from 1 above. Buy the assets by type. This will provide more support to any IRS review. See my post on cost segregation. Roads and parking can be written off in year 1, etc.
3. Add in a noncompete agreement. Try to lower value put to land or building. Noncompete can be expensed sooner. Depending on Seller's tax positions, they won't or will go for this. This will also help on any property tax challenges, to lower value.
4. See if they want to do a 1031 exchange for another piece of property and be flexible on Closing date. Put in place a deposit/1st right of refusal structure, so deal doesn't walk away from you. This helps them out. Offset that with larger Seller financing or more years before balloon payment, or lower interest rate.
5. Are there any repairs or major upgrades that need done? Have them done as part of the deal, so you can roll into long term financing, versus paying cash once you take possession.
6. Lien position. Ask the seller to take a lien position or other collateralization, than the building. This will free up the asset for any future re-financing with a bank. If the Seller has first position, a bank won't take a second position. Thus you can't use this asset to collateralize another deal.
7. Contact Blue Street Capital at Huntington Beach, CA, tell them Henry Clark from Iowa/Nebraska said hello. Ask them to review your situation and run some numbers for you on a Lease option. This long term will cost you more than a straight up purchase, but don't know your financial objectives or collateral/expansion position. Again, don't know Asset type from the above.
Thanks for the reply. Its a 6 unit building, value is about $2.9m, rents are close to market and building doesn't have any major deferred maintenance.
They are looking to potentially 1031, depends on what we all come to an agreement on.
The best option we have as of now is a seller carry of about $1M and then finance the other $1M.
We will definitely give Blue Street Capital a call, thanks for the referal. Thanks again for the reply.
Another option. Lower purchase price. Offer them a 5 year management fee for $xx,xxx per month guaranteed. See if there is any tax advantage to them.
If this is a commercial versus mfh then break out parking, landscaping, hvac, etc for early writeoff.
Not sure where the subject is located . Creative is important and also not sure terms of the seller financing part . Happy to network .