Mixed use building sale - Financing - underwriting - SBA

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Hi everyone,

I'm pursuing a deal on a mixed-use building in a prime location. Purchase price is 1 million. Seller purchased 3 years ago for $825,000. The first floor is a commercial space housing a pizza shop that grosses $800k annually. If operated correctly, it nets 20% plus a salary for the operator. The second floor is a 4-bedroom apartment that can rent for $2,500-$3,000 a month with $15k in renovations. For restaurants, rent should ideally be under 10% of gross sales, so I believe $5,500 a month is fair.

The seller doesn't have a rent roll or strong financials, and his tax returns are 50% lower than his claims. To address this, we agreed that I would work in the business for six months to verify the financials, which so far align with his POS system.

My main issue is that at 23, I don't have strong financials to get a conventional loan at 75% LTV with a ~7% rate, and the seller's lack of financials complicates bank approval. SBA lenders are confident the deal is lendable, but SBA rates at prime plus 2.5% are high, and I don't want to risk default. I could raise money and bring in partners, but I'd prefer to own 100% of both the business and the real estate. Would love to hear what everyone thinks and am curious to hear everyone's thoughts on the deal. Should have it under contract in the next month with a closing Jan 1st. Thanks you guys.