All Forum Posts by: Account Closed

All valid points. Like I said, I want to hear these things.  This is a huge undertaking and I need to see every angle.  You are all experienced in this.  That's why I'm asking.

 I have moved the business 2 times and have gone though 3 build outs so I am familiar with lease contracts & moving costs.  We plan on leasing out the space in a white box condition. I myself have negotiated free months so that is something to think about.  

While I don't have the cash flow to put down on this new property I do maintain a steady flow within the business at all times that would be able to see me through anything that isn't a massive expenditure. 

In the end, however, I can't afford to take on a donkey. 

I'm thrilled to hear every position on this setup. We haven't worked out all the details yet.  We definitely agreed that everything would be drawn up in a contract by an attorney very familiar with this type of real estate. 

As far as what I said about worst case scenario numbers, I meant we were guesstimating far above what we think we can acquire the property for and what we think it will take to rehab the structure on said property. Also using higher percentage rates for loans instead of lower. 

I agree with you that we have not planned on worst case but rather best case when it comes to actual long term plans. Blindly, I'm very focused on the setup of the initial loans.

I just wasn't sure about the amortization of his 10 year payback and that's why I originally sought out this forum. I now see that I have a world of other scenarios that need addressing. 

It's much easier signing a lease and going on with day to day business.  Taking this jump is a major make or break situation for me at this point.  As rent continues to go up and I have watched myself payout a million in rent already over time it makes me nauseous to continue this trend without doing myself the favor of building equity. 

Thank you so much for your input. It's really brought some obvious, important points I wasn't giving time to to the forefront. 

Thank you so much for your reply. 

 We budgeted this project with all absolute worst case scenario numbers, so these are as high as they should be. Also with higher bank loan rates. 

 With the SBA 504 loan we are planning on using for half of the mortgage we are only required 10%DP based on me being owner occupied. His bank isn't requiring him the traditional 20% either. 

The rehab & improvement costs will be rolled into the loan amounts which has already been discussed with the second lender. 

The lease rate is below market value so we should have no problem getting it on the tenant side and will probably be able to secure it for more than that with my business being a draw. My portion is well below market value which is a huge incentive for me.  I will be gaining 3k in SF while most likely lowering my payments and building equity at the same time improving my cash flow. I do plan on signing a lease and renting from the property separately as suggested. 

5 years ago I moved my business to this area after I struggled through the economy crash at a high lease rate.  I have only been seeing an increase in sales since. Things are on the upswing now.  That would be the main reason the cash flow isn't there for me. (I have a huge inventory that has cash tied up.) 

I will be providing zero funds besides the monthly lease payments.  We are still in the preliminary stages of this and being so new to this situation I wasn't sure if this was a normal structure or not. 

You mentioned the waterfall profit sharing.  We plan on paying him back and the banks at the same time. Monies being dispersed to 3 parties each month. All amortized.  He will get a full payback in the planned 10 year time frame.  He at no time will provide money to cover a payment. The renters (assuming we will always have one) will be covering his portion of the payments.  My rent will go to the mortgage from the 2 large loans. When the partners loan is paid off the renters money then goes to the principal balance of the other loans until paid off or if we at that time agree we would like to take distributions we can. 

That's the only part that was a little bothersome.  I know he is taking a huge risk in the development with his money but if all works as planned, he never pays out anything and walks away with half ownership of a 2+ mil$ property.  I guess that's investing.. That's where I'm new to this

I am in the process of getting an attorney involved to draw up the paperwork to work out all of the details as we are still trying to figure out if the rehab portion of it is attainable within our numbers. 

I just didn't want to go any further with him if this setup wasn't a benefit to both of us. I appreciate your feedback immensely. 

I've owned a retail business for the past 13 years leasing only. Always wanting to own a space and build equity. My lease is up soon and I have found a property I'm interested in. I had someone I know offer to come on as an investor/silent partner on the property side only. He wants no part of my business. 

I do not have the cash flow for the down payment needed for the property in question. He owns a business himself along with his own building already and has been verbally approved for a loan by his banker (20+ year relationship) which whom I've met with. The building needs heavy reno for my purposes. Along with my space we are also planning on 3000 sq feet of rental space.

He is planning on 300K cash DP. He came up with an amortization schedule for this loan at 6% for 10 yr Total cost 399,674 giving him a profit of 99,674 over 10 years and he is also asking for 50% ownership of the building at the end. He is planning on the renting tenant to pay the monthly note to him. The rest of the loan would be paid by my store which would take up the rest of the building space. ($9500-11000 based on interest rate) 25 year note which we are both planning to be on. 

Also discussed was after he was paid off in 10yrs, using the rental money towards the principal balance so we can pay it down faster. We have not negotiated a price on the building as of yet but the asking price along with what we think we will need for rehab will be around 1.9-2.3 mil.

I have not done a deal like this before so I do not know what to expect as far as rates, payback...Is this way off base or close to what is expected with a private partner? Is it normal for payback to amortized with a partner? 

Thank you to anyone that can shed some light on this situation for me.