When to fire sale property

Question

Last year my mom bought at restaurant in a small northern California town. After puting money into refreshing the eating area she opened. For a total of 39 days and then passed away. I just filled taxes and the business and it shows a -12k loss. So when people ask to see the books they see a loss and don't see any cash flow. She bought the building and business but the dirt is on a 15 year lease.

So we have $3000 lease, $2400 insurance, $127 water, $160 power, $37 alarm and $850 LLC. Also sure I'm missing something. About $844 in the hole every month. No mortgage.

Anyway the place has been for sale for months but we can't take the loss much longer. We did a price drop 2 times so far. Should we show a big drop close to the bottom line we would take. Or should we leave room for a low ball offer to feel better. Any advise you may have would be helpful.

Should we attempt to lease the building to someone else at the risk of loosing a possible sale?

Grant Rothenburger · Answer

@Ramon Mota

I would try to do like @Michael Tripp suggested and try to negotiate the bills down. I would also look around and see what that kind of space leases for, if I could lease it to someone and cover my expenses, I'd do that. Then I'd put it up for sale now that it's at least breaking even.

If that's not possible, sell it for whatever you can get and quit losing money!

Sorry for the loss and the bad news with the business.

Michael T. · Answer

@Ramon Mota that's unfortunate about what happened, I can imagine how difficult everything has been for you and your family and sorry for your loss.

Since you are losing money every month there is really no reason to hold on like you are doing, however, there are probably a few things that you can do prior to doing a fire sale.  See if you can renegotiate the lease, renegotiate the insurance and try to improve revenue which will offset some of the fixed costs.

After you've done these things have a conversation with your real estate agent on the best next steps.  Your agent should be able to give you the best guidance in regards to lowering the price to get a buyer.

Ramon Mota · Answer

To close the loop we sold late may. It was lower than asking but were happy to be free of it and we are looking forward to reinvesting soon.

Dylan Vargas · Answer

@Ramon Mota I would look into leasing the place to an owner / operator if you don't want to sell. An operating restaurant is much more attractive than a closed one. Just prequalify the potential person/business. With that being said I would still try to renegotiate the lease so you have wiggle room with new operator. Restaurant business is tough so make sure you want to deal with this or simply consider selling. Operator is looking at about $6000 before they become profitable. So there must be some serious volume. Not to mention employee costs etc.     You should be making some profit off the lease as well so even more to the operator. I would get someone in there and get it running. At least the bills will be paid and then can even sell to get out of it. Good luck and keep us posted.

Ramon Mota · Answer

The restaurant has been closed from August  to now. Also I have considered leasing it to someone but I was concerned about if they take or destroy the equipment?

Does anyone have advise about leasing out a furnished restaurant?  Also I figured if someone leased it from me I would pay the yearly due and then make them pay all utilities and business insurance with me as additional insured.

Dylan Vargas · Answer

@Ramon Mota Welcome! So sorry to hear about your Mom. Is the restaurant open and running?