Vineyard Estate deal strategy review

Sacramento, California
Real Estate Deal Analysis & Advice
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Vineyard Estate deal strategy review

Rahil Jain
Member since 2020 · 12 posts · 4 votes

Hi all,

My first post did not go into much detail about the business financials. Based on the questions received, we pressed sellers on specifics and now have greater clarity on the overall health of the business. Here are the details.

  • Property: Vineyard Estate, 10 acres
  • Primary use: Event venue
  • 2021 P&L
    • Revenue: $258k
      • Site rental: $132k
      • Value-added service (e.g. catering, decor): $114k
      • Wine business: $12k
    • Expenses
      • Labor: $24k
      • Supplies: $64k
      • Maintenance: $32k
      • Business Services: $20k
      • Business taxes: $21k
      • Mortgage: $50k
      • Property tax: $13k
    • Net proceeds
      • Profit: $34.8k
  • 2022 P&L is worse. Profit at $8k for $254k gross.

My read is that business is moderately distressed. I would pay $1.66M to acquire the business, which would 3x EBITA (~22k avg) + Assets (permits, chairs, tables, etc, $100k). The RE appraisal is likely closer to $1.3M per comparable and the seller themselves.

Deal Strategy: I want to make an offer at $1.46M - all cash with 30-day closing and all contingencies except financial. We have proof of funds for this amount and can get a loan later to save personal funds. This might seem like a lowball offer, but I have a hypothesis. I believe that most buyers would need financing to buy this property. And I think that financing would be hard to get because of the low appraisal value and the poor financial performance of the business. I also know that the sellers are eager to retire and move on. They wouldn't want to deal with any hassles or delays. I hope that they would see the value of my offer: a quick and easy sale with no risk of falling through. I also plan to rationalize why I think their asking price was unrealistic and why my offer was fair. I will also write a letter to tell them how much I loved their property and how passionate I was about their business.

What are your thoughts on evaluation and deal strategy? Anything I am missing or double counting?

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    3y

    Mortgage is not part of income statement.

    For cash flow you do need to project p/I for cash flow.

    No insurance shown.

    You need to understand the expenses more.  What are they for?  Which portion of the business.  Example.  If most of the costs are for the vineyard.  Then you should rent the vineyard out. Have them private label some cases for you, so you have a story.

    You need to budget your labor costs into the deal, even if you don’t plan to pay yourselves.  

    What will property taxes be after you buy?   What will your insurance be?  

    Are you running this through a commercial realtor?  Even if seller doesn’t.  I would engage your own buyer agent.  You would need to pay them.

    Do an asset purchase and not a business purchase.  

    Again this is a business.  Check for liabilities tied to the property.  

    Epa issues?

    Have water source tested for nitrates and bacteria since you’re hosting people on site.

    Check equipment out.

    Make sure contract includes an inventory of personal property so it doesn’t walk.

    Non compete agreement.  Put a dollar figure to it so you can write it off in year one.  

    Make sure of bank lien release.             
    Check on easements.

    Documented water rights.

          
    How are the vines?  Tie part of the purchase price to them supplying one year of consulting.  Again so you can writeoff.

    Make sure the book of engagements are part of the sale.   Again allocate part of the price to that.  So you can writeoff.  You want as little as possible going to land or the buildings.

    So how much would you pay you and your wife for your time?  Make sure the Cashflow covers you.  

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  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    3y

     Smart strategy, I like it. If you're intent on closing, that's the way to do it. 

    Just wondering (and maybe I missed your first post...) 

    Are you prepared for this kind of "lifestyle business"? 

    Honestly, it sounds like they're BLOWING it and my instinct tells me this can be attributed to poor management. If you make this your full time job, I hope you could extract a 15-30% profit margin off that revenue. Then, and only then, would this deal make sense to me. 

    Just my two cents. I am a local broker, investor, and property manager (100+ units). If you ever wanna talk shop, DM me. 

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