My first deal turned out to be a business investment

[Miho Hatanaka]

Investment Info:

Retail other investment in Portland.

Purchase price: $100,000
Cash invested: $10,000

My business partner and I bought a massage therapy clinic and a teahouse on 1/29/2020.
It's been established for 5 years with a strong customer base. It's cash flowing a bit but with a lot of upsides and minimal risk.
The business is on a popular street in Portland, OR. We have 6 LMT who are independent contractors and 3 front employees. My business partner is a massage therapist who is handling hiring/training LMTs. I am handling backend finances, accounting, and medical insurance billing.

What made you interested in investing in this type of deal?

I have a background in healthcare (registered dietitian) and have always been wanting to own my business.
I was talking with my friend before knowing about this business that I want to build a health and wellness center.
That night, I Googled "wellness center for sale" and this listing popped up. Without any intention of buying, I contacted the listing broker and he connected me with the seller who saw the same vision I saw.

How did you find this deal and how did you negotiate it?

On a business listing website. The seller and I had been in contact for almost 2 months before I decided to buy the business. She had other buyers with full purchase offer but she did not want to sell her business to business flippers. She appreciated that I respected her business and her employees, my healthcare background, and strong finance/accounting/business skill (thanks to Bigger Pocket and real estate investing!).

How did you finance this deal?

Came up 50/50 cash for a $10,000 downpayment with my business partner. The rest of it is owner financing, $90,000 at 5% interest rate for 6 years, plus six-month payment deferment after closing. With the COVID outbreak hitting many businesses (including ours), seller is willing to push the deferment period longer.

How did you add value to the deal?

Though space is leased, improving the space by painting, updating furniture, equipment, organizing and systematizing things in the business. I am working on to streamline the business (following E-Myth by Michael Gerber) processes, establishing standard operating protocols. Systematizing medical insurance billing, upgrading the booking software.

What was the outcome?

Not sure yet! Hopefully good. Due to COVID outbreak, we have been forced to close our store for 2.5 months. But it's a blessing in disguise, we got so many physical improvements done during this downtime and getting things organized.

Lessons learned? Challenges?

Don't be afraid to pick up the phone and call.
Also, there are always things you can do even during the historic viral outbreak. Keep pushing and moving forward.
I got a lot of stuff for the business done, otherwise, it would've taken a whole year to get to where we are now. Now I have more breathing room to focus on real estate!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Business broker (sell-side), we were unrepresented.