Does this type of loan exist?

Question

Hello BP! I have the opportunity to purchase a mixed-use building in my local town for 80k. It has two rented apartments on second floor, rented out storage in basement and ground floor is a vacant salon. My plan would be to buy this building, have the income from the apartments and storage to cover the mortgage and then gut the storefront and open a liquor store or bookstore and personally run it. The profit from the store would be the cash flow.

My question is what type of loan could I secure that would cover the purchase price, reno and business expenses for inventory and supplies to get the business up and running? Is there a loan program that would lump all this into one? Is this an SBA loan? Has anyone tried something like this before? Any help and insight would be appreciated. Would love any advice or stories about if you succeeded trying something like this. Thanks!

Bryan Mitchell · Answer

@Ryan Alexander, I love the concept of multiple streams of income under one roof or on the same property. Please share your progress. By the way, you could partner with another business for the space or simply lease it as well. This all depends on how much time and energy you want to invest outside your RE agent business. I know agents and brokers who are happy working only 20 hours a week and clearly could make more money if they wanted to. They chose not to.

Christopher Contento · Answer

Yes, I've always had success getting lower rates once they find out we love the bills!  Just kidding, but if you haven't already done so, check out show #61 on the BiggerPockets Business Podcast...the interviewee (Ashely from Buffalo coincidentally) sounds like she is absolutely crushing it with the Liquor Store business and she shares some great insight.  Good luck!

David Robinson · Answer

I work with multiple lenders and I can think of a few that may be interested in financing this deal if it is cash flowing now, and you plan to add value creating more cash flow. Connect with me and I see what I can do to help, if it will have a Steelers flag on the property the rates may be higher, but if you want to put up Buffalo Bills flag, it may be better, just kidding a little.

Logan Hartle · Answer

If you have equity after buying you may be able to utilize a HELOC for the renovations. If no equity in this one and you have equity in another building I would suggest trying that. SBA loans can be had but they have big fees  and tend to be a pain to get rolling. Your local bank will have some options.

Ultimately it may make the most sense to separate out the business from the property. Speak to an attorney but they may advise you on owning the liquor store in one company and owning the real estate in another. If that’s the case you will want the funding and financials to be completely separated.

Joel Owens · Answer

Go to your local bank where you have deposits. It can be good you live locally. That might help the lender take a chance.

It's too small for mainstream lenders or commercial mortgage brokers to want to deal with it. Small deals have lot's of work and typically low return for the time invested.

You should be making more as an agent annually than running a liquor or bookstore business. Small town maybe makes 50k profit if your lucky after expenses.

Brian Congelliere · Answer

@Tim Delaney you are right—that was true for 2020 and the six of payments. They extended it for 2021 in the new relief bill, but capped the monthly payment amount at $9,000.

Kent Moen · Answer

Ryan,

That sounds exactly like what Ashley Kehr did with one of her buildings.  She has written and talked about it on her IG page as well as on her own podcast right here on Bigger Pockets.

Rebecca Calbert · Answer

You'll end up with two loans for two separate entities.

First loan for the building purchase and the entity you create for the purpose of real estate holding.

Second loan for business start-up and the entity you operate your new business with.

You will also need a separate business plan for each to give to the bank, showing the realistic projected business operating income and expenses.

Tim Delaney · Answer

I would recommend buying the building and starting a business in two different entities. If the building has positive cash flow even though one unit is vacant then you should still be able to get a regular commercial financing without SBA. You will get longer terms on real estate than for a business loan so all the more reason to keep the ideas separate.

Also may want to think through the type of business carefully. I own a liquor store, it is great, but is a lot more work than many people assume. It also requires a LOT of capital for inventory. You'll also want to look into the legal hurdles - I actually thought all liquor stores in PA were government owned.

I went the opposite route - I purchased the commercial plaza that my store is in after a few years in business. I keep the two entities completely separate, but it is nice owning the real estate where my business is located.

I would talk to your local banks to see what options they have. If M&T is in your area they do a lot of SBA lending and would be good for that route. But there may be other local banks that have even better options for you. Hope this helps.

Ryan Alexander · Answer

@David Robinson

Thanks, David. I sent you a connection request and message. Would love to discuss more!

Does this type of loan exist?

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