Potential (Small) Hotel & Restaurant Deal - Acquisition Insight Needed

[David Hays]

Hello BP Community, I´d love to pick your collective brains on a potential deal I might be putting together with my best friend. As of now we have not spoken with the seller or their agent, but my friend visits the property on a regular basis (it is currently open) and lives nearby. We are exploring this idea because my friend is already in the process of opening a brewery in the area, and when I found this property we thought to combine our respective expertise. For clarification, we're asking for input on how to break the barrier of entry, not proof-of-concept (in this particular case, the entry is the hard part).

The Property:

• Located in a very rural, small California town
• Over 100 years old
• 16 hotel rooms
• Onsite restaurant and separate bar (full commercial kitchen)
• Attached owner´s apartment (not clear on size or configuration)
• Additional structure on the lot, configured as a metal shop
• Asking $395,000

Our Assumptions and Estimates:

• The owner is retiring (her husband died in 2010, she is of advanced age, and they have owned the property since 1996).
• The mortgage remaining on the property is $222,000 (according to LoopNet - can anybody tell me whether this information is typically reliable from there?).
• Estimated repairs and development (note, without an inspection): $60,000
• Our estimate of market value: $340,000 (based on a recent sale of a similar property, and comparative listings in nearby, similar towns).
• The listing is relatively new - 16 days as of now - but we believe that the prospective buyer pool for a property like this in this location is going to be extremely small, so we are assuming that (given some time) this seller may be very motivated.

What We're Wondering:

• How do get the conversation started with the seller or agent on this? I've never purchased a commercial property before, and would not know the right path towards analyzing their books (I assume this might be after an accepted offer?).
• Any ideas on creative financing solutions here? Neither my friend nor I have the significant cash on-hand for a 20% down on a conventional loan (even assuming the seller accepted an offer at the lower price). My first thought was proposing seller financing, but given that there may be an existing mortgage I understand that that needs to be settled. Perhaps a 1st from the bank to cash out the existing mortgage and provide for renovations, and proposing a 2nd from the seller for the balance? Any tips on that route, or it's prospective viability?

I look forward to any of your thoughts, and I appreciate the feedback.