Grow Op in the basement of a home I want to buy/hold.

8 Replies

Ok, folks.. Off market 3/1, lots of rehab upside 80K. But the seller has a non-operating grow room in the finished basement he wants a side 30K for. (Hard not to laugh, but he sees the value there and considers the two, one and the same).

And it's been there for 10years. I want to buy the home (apples) but he wants to sell the business (oranges) too. Even with questionable legality aside (Siskiyou co ca), he'd have to account for depreciation, etc.

But I Dont even want to go there.. see his 80Kand raise him 10K?

What about an appraisal/inspection? Code? Plant hydro tomatoes?

Frustrating, he owns it free and clear, its vacant, I want to live in and rehab it. Re-fi out asap and see a 50K gain.

Ideas? Thank you folks, A.

haha, that reminds me of a deal we used to have here.  Decent house, '70s, 2 story, lots of land, plus a dog kennel, that, as I understand it, barely clears costs(itty bitty town). $250,000.  I can buy a grat mfh and acreage for $175,000 retail.  Huh.  Sometimes people are just not motivated.  

If he is selling the grow- op as a business, you should critique it like a business. For example whats his monthly revenue, operating costs, is he licensed with the state (doubt health Canada knows about this). At least give the impression that you know what it takes to run such a business and know what a hassle it will be. In the end, if you know it will be a headache to run a business in your RE business, just walk away. Do you want to be a pot farmer? 

~Eddy

Ask him to show you how he got to 30k. value on a non-operating business and if he's had other buyers? Otherwise, it's up to you on how bad you want it and any unknowns that might go with it. You know he's looking for a quick buck - are you willing to give it to him? You could find out the value of equipment (help him sell it) and perhaps pay that amount, which is basically the additional 10k you're thinking about.

Eddie, this guy is in California, not Canada. You got the wrong CA.

I agree with the opinion to sue it out as you would any other business. Perhaps he is legit and has a license to grow for sale to dispensaries, or maybe he is doing his business under the table. We have to understand that this is a legal and legit form of business in many states now (growing medical marijuana), this would be good information to know before negotiating. But also, I agree with the other comment, Are you wanting to get into another business besides RE as well? Depending on the answers to these questions is how you would form a strategy with the owner.

I know that a lot of indoor grow equipment can be expensive, but yes, you have to consider depreciation if you are going to put a value on his equipment. If his equipment has been there for ten years, it is not likely that it is worth 30k, besides, his profits over the last ten years have more than paid that off, so the depreciation on that equipment would be pretty large. I would consider using that fact as a negotiating tool to get him to come down on the price, or...

Maybe you should simply tell the owner that you are only interested in the house and he can take his grow equipment and liquidate it himself if he wants to get out of that business before he sells you the house. No one in their right mind would consider any business to be the same as the house. If he thinks so then he has been smoking some really toxic weed. If his equipment is worth the 30k that he claims he should be able to get that price for it on its own. 

I would give him a purchase agreement with your best price on it, and a contingency that states that the grow equipment is not included in the sale and see what he says. If he really wants to sell the place he should be willing to negotiate the price to something that is at lease reasonable.

You might even need to wait until he is more motivated and maybe not so stoned. 

Good luck!

I would consider a non operating grow house to be a negative 30k unless you plan on operating the business. If you read on here you will notice all the negatives that such has in a house. You will probably have alot other expenses to clean up the site and get it into a working house. 

Just a thought!

Originally posted by @Timothy Carlson :

Eddie, this guy is in California, not Canada. You got the wrong CA.

Ha-ha, I completely overlooked that. Thanks Carlson. If it was me, l would not want to be involved at all in a grow- op in the states. The laws are not as concrete as in Canada, and the feds still consider it a schedule one narcotic. All these to me are red flags. Personally, I'd try it somewhere in Washington or Canada, but not Cali.

Thanks everyone!

I've mentioned to him that his pool of buyers will be much smaller if he leaves it in there. Really, if he took it to market, his secret is blown.

I've thought of a consultant to give a valuation as well. Also suggested he just pull it out and sell it off or move it, but no go. I believe that he is basing his price on future earnings as well, which is not the business I want to be in. Hours in a basement, not my thing.

This county's legislation, as proposed would allow this to be legal for a licensed grower- because it's indoor, with a seperate entrance. However, I doubt the installation (electric) is up to code.

Anyway, I'm trying to bring him back to the table today. It'd be a perfect home to build up, renovate and operate my business from.

Everything's negotiable until it's not, right? I'll keep pushing and update. 

Thanks again for the insights and well wishes. I really want to wrap this one up and turn it into a stellar home! ...all the potential is there.

Best,

A.

Of interest, he wants $30k "on the side".  Regardless if the "business" or equipment are of value, I suspect you'll get a lower overall purchase price if you offer some of the money "on the side" (i.e. in cash and not included in the contract price).

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