Mixed Property - Restaurant/Residential to Purchase and Divide

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Mixed Property - Restaurant/Residential to Purchase and Divide

Patrick D.
Oyster Bay, NY · Member since 2010 · 14 posts · 2 votes

Hello BP Community,

I am in the food business and have been for a while now. Being a successful restaurant/deli owner I am trying to increase my net worth and begin investing in real estate.

Here is the lowdown on a property I am looking at.

This property is on the market for 1.5m. It consists of four lots, three of which are empty and one that an very old, outdated restaurant sits on. It is in a beautiful town with much potential and these are pretty much the remaining lots to build on.

Here is my idea. I would like to purchase the full package, make an offer around 1.2m and see what happens. Even if I get the land + restaurant for 1.4m I think I can make this work. The only problem is I don't think I will be able to go to a bank to get conventional financing on a deal like this. I have to think creative, way outside the box.

Houses in the neighborhood go for somewhere b/w $500,000-$600,000. My idea is that right off the bat, I take two of the four lots (lets say lots #1 & #2), partner with a builder who pays costs to build the houses (+labor) and split the profit of the sale 50/50 of lots #1 & #2. Now, I would take the other two lots, turn one into a parking lot/outdoor dining area for the restaurant (lets call this lot #4) and keep the other one as the restaurant (lot #3). On lot #3 there is a small cottage behind the restaurant that I can collect about $1500 a month rent.

If I can get an investor to lend 1.5m (for purchase of the lots + buildout of the restaurant) does anybody think this will be worth it? I am looking for the investor to hold a note on the property, 100% secured by the property.

Any ideas or insights on how I could make this work or if anybody thinks it is worth it? Basically I would be getting the two lots (#3 & #4) for pretty cheap (as there is a rental cottage behind the restaurant on lot #3 to help pay the note off) and have a business to sell down the road.

How should I structure this? As for LLCs, should I LLC each individual lot + the business?

Not sure if all of this makes any sense, just looking for insight...

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, as to your question, I would suggest you simply purchase the entire property in one LLC. But, before you do that, let's consider the idea. I see you are in NY, not familiar with your area but I guess housing is in demand.

    Mixed use properties are financed as commercial properties, like zonning, the lowest zonning (like retail or wharehouse) governs the loan type and the housing is a higher rating. Since your properties are probably unattached, seperate financing might be available. But, first, get with an appriaser for a market survey and appriasal. Is a mixed use property like you are thinking about common for the area? You probably can't use comparable homes in the area, like that 500K price range unless that property is next door to a resturant or like commercial property. If that is common for the area, there might not be an issue. But generally, a home next door to a commercial builsing will not sell at the same price as one in a residential area, for like homes.
    That should establish what your residential units will be valued at and what the rents might be. I did a resturant and two single family homes together, but they were deed as seperate lots. That would be the best way to do your deal if you can and financing can be done as one unit at a time instead of one project as a mixed use project. Hope that gives you some ideas, Good luck, Bill

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  • Patrick D.
    OP
    Oyster Bay, NY · Member since 2010 · 14 posts · 2 votes
    16y

    Financexaminer,

    Thanks for the in depth reply.

    If I were to look for potential investors, how would I structure this? Being that I am going to run the restaurant, I will have income from the business paying off the note.

    I guess the first step before doing anything is to get a market analysis with comps from an appraiser? What about a survey on the property to see how it can be divided?

    From what I gather, the whole thing would be structured as followed these would be the steps:

    A private investor would hold a note with the MAIN LLC secured by the full property. Since conventional lending is out of the question (I own two cash businesses), I will need to sweeten the pot for potential investors on the property. I would than have the cottage behind the restaurant paying rent to the MAIN LLC as well as the RESTAURANT CORP paying rent to the MAIN LLC. Now, this is where it gets tricky.

    When and if I sub-divide the two lots I am going to build the houses on, do I structure them in each's own LLC? The only reason I ask is because I plan on partnering with the builders and possibly the investors, splitting the profits when the houses sell.

    In my mind, I have an idea of what needs to be done but getting it down on paper is a bit harder. I want to be able to pitch this to an investor willing to hold a 15-30 year mortgage..... does anybody think this is feasible?

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