Family owned commercial shopping center

Member since 2018 · 21 posts · 3 votes

Hi,

My parents own a shopping center. It will be fully paid off in about 2 years. In the shopping center we have our own store occupying the entire space.

My dad approached me saying he wants me to take over the store and all its assets for free as a gift,If I buy the building from him. That way he can cash out and retire.

They bought the building for around 350, 20 years ago. We are guessing it's value around 750 today. We haven't had it appraised. It does need a new roof, repaving the parking lot and general repairs.

Currently I own one condo worth about 100k free and clear

Personal house has 170k mortgage and I have about 20k in personal debt.

What do you guys think? If I took the deal would I get approved for a 700k mortgage?

1 Reply

21 views

Most Popular Reply

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

Omeed you need to talk with your family tax attorney and estate planner for how you would optimally structure this.

No legal advice given.

Podcast Guest on Show #47

NNN Invest53 Reviews

Website View Page

2 Reply

See this reply in the discussion

9 Replies

Jump to latestLatest

Sort by

Stanley Bronstein
Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes
7y
@Omeed O. Is it possible your father could give you Seller Financing and you just pay him every month, or does he want to get all of his cash at one time? Seller Financing would probably be a lot easier, if he is able to wait to get his money over time.
1 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
Omeed you need to talk with your family tax attorney and estate planner for how you would optimally structure this.
No legal advice given.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
2 Reply
Omeed O.
OP
Member since 2018 · 21 posts · 3 votes
7y
@Stanley Bronstein I don't think he wants to wait he's been kicking around the idea of putting up for sale in the general market for a while now.
@Joel Owens Yes I know that's obviously the next step, I think what I want advice about is what you think of the deal in general? How would someone "buy" or transfer ownership of a property from a relative?
0 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
7y
How much do you make per year Omeed at your job or business?
Your assets are light for a deal this size to qualify.
How debt works and ratio's involved will likely depend on what going in cap rate the income throws off with purchase price.
There are hundreds of items to analyze when looking over a retail property and takes a lot of time and due diligence.
The items listed for roof, parking lot, etc. can equal in to the six figures in costs so very substantial to repair or replace. Probably your dad like many owners sucked out the cash flow over decades and did patchwork repairs instead of maintaining to a (sell ready) standard. How tenant leases are structured shows who pays for what etc.
The property might be a tear down on an older building if location is good. Without an address to look at it hard to say.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
2 Reply
Ronald RohdePro Member
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
7y
What are you goals post-acq? That drives a lot of the analysis as well. How it title held? May be some alternatives via corporate structures.
0 Reply
Ken Jernigan
Wilmington, NC · Member since 2017 · 132 posts · 70 votes
7y
Business needs to cash flow to cover existing and proposed debt by 1.2-1.3X. Not usually a problem financing transfer of business and property to a family member as long as the seller is walking away from the business. Everything else being good--appraisal, environmental, personal credit--this should be financiable.
0 Reply
Paul Halphen
Rental Property Investor · Greenville, SC · Member since 2015 · 19 posts · 20 votes
7y
You need to structure the deal as follows:
700k purchase
100k construction (deferred maintenace)
800k total acquisition
20% down consisting of two parts... 80k refinancable equity from your condo and a 80k seller note 2nd mortgage (your dad)
Wrap up those big ticket deferred maintenance items right away. Set yourself up for success the next 30 plus years.
Your provable income plus the stores income will need to be enough to justify the loan. Your debt payment will be 5k-6k so you are gonna need some quality income to make it work.
The convenience store should lease to the real estate entity at a 1.2:1 DSC. The bank will want the cstore entity, the real estate entity, and you on the hook. Globally all income will likely need to be 1.4x all of your debt payments.
If your dad has great financials on the store this will help. Theres some massaging you can do with the down payments and the note from your dad to make the bank happy. You will have to balance their LTV and the cash flow coverage requirements (DSC).
The key is income. You will likely need a good 10k-15k a month of net income between the store and you minimum to qualify.
From the banks seat this would be an owner occupied deal with some experience, real estate secured, established business so it has a lot going for it as long as the $$$ is right!
0 Reply
Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
7y
Ask your Father to co-sign the loan if he doesn't want to OWC.
Good Luck!
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.