Buying a Building and Retail Business (Liquor)
Hi all, I am considering purchasing an off-market commercial building in a small tourist town. I am trying to gather as much information and guidance as possible, and appreciate any input that you can provide!
The building consists of two store fronts and a two bedroom apartment. The building was built in the 1800’s and matches the historic architecture of the town’s Main Street. The liquor store inhabits one of the retail spaces and does not pay rent (the building and liquor store are owned by the seller). Rents for the retail space and 2 bedroom apartment have not been raised in over 10 years.
The sellers have owned the building/liquor store since the 70’s and are retiring to move closer to their grandkids. The numbers:
Asking Price: $450,000 including inventory (~$65,000)
Gross Rental Income: $19,200 (2019)
Building Expenses/taxes: $8,211 (no mortgage)
Net Rental Income: $10,989 (2019)
Liquor Store Gross Sales: $471,886 (4 year average)
Liquor Store Net Profit: $124,738 (4 year average)
One of the owners currently acts as the manager of the business at a reduced rate of $20,000/year. The other owner works about 10/hours a week at the register and does not collect pay. Both of these factors would reduce projected profits. I plan to be in the area six months of the year and be involved on a part-time basis. I would hire a manager and keep the current long-term/part-time employees (if they wanted to stay on). Obviously I would need to have excellent systems in place to be able to act as a partial absentee-owner. With the increased labor costs included and the business paying rent to a separate LLC I will create, I am conservatively estimating projected profits to be $75,000 a year for the liquor store. In this model the building gross rents would increase $12,000/year, but keep in mind that there is currently no mortgage payment expense.
I could go on, but I will leave it here for now. Thank you for reading! What are your thoughts?