Real Estate Business Purchase- Owner Finance

Member since 2025 · 10 posts · 3 votes

Hello All, a good friend who I have know for over 20 years is retiring from his real estate residential construction and remodeling company operating successfully for over 20 years. We have discussed my interest in taking over the business through an owner finance.

What are some legal advisors and processes that I should take to ensure all the proper documents are in place to protect both party? Any help is appreciated.

Thanks

Doug

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KC Ushijima
Attorney · UT · Member since 2025 · 55 posts · 46 votes
1y
Generally speaking, it is recommended to hire a local attorney to represent you and to also draft the purchase and sales agreement.

The attorney can also search the court docket to see if there are or have been any recent lawsuits against the business, and/or owners. The attorney can also search to see if there are any liens or judgments.

You can also work with a CPA or another professional to help determine the fair market value of the business.

You also need to determine if you will be buying the actual business or if you are going to buy the business's assets.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
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Cliff BennerBusiness Member
Accountant · Denver, CO · Member since 2020 · 394 posts · 183 votes
1y
Quote from @Doug Pham:

Hello All, a good friend who I have know for over 20 years is retiring from his real estate residential construction and remodeling company operating successfully for over 20 years. We have discussed my interest in taking over the business through an owner finance.
What are some legal advisors and processes that I should take to ensure all the proper documents are in place to protect both party? Any help is appreciated.
Thanks
Doug
Regarding the Financial Due Diligence, you will want to take a look at the financials for the past few years and add back in any items related to the Owner that will not be around when they leave; Mileage, home phone costs, personal vehicle, their wages taxes and benefits, meals, donations they make, loan interest expense, depreciation/amortization, and any crazy one-off items. If the revenue is under $5mil a year this total is commonly referred to as SDE, Seller's Discretionary Earnings and that total is taken by a multiplier of 3-4x as a common rule for the purchase price. Above $5mil is referred to as EBITDA and that multiplier is more around 2.5-3.5x.
Then you need to check the financials vs tax return, because if they are willing to lie to the IRS, they are willing to lie to you.
Value the Assets to make sure they will keep working and are worth buying at the price as well.
Look up the book Buy Then Build, it is a great resource.
Good luck! Any feel free to reach out if you need any help!
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