All Forum Posts by: John Roberts

Quote from @David M.:

@John Roberts

Well, my numbers come out a bit differently..

But, I'm not used to using the interest payments as a way of making up for the purchase price...  The 12% interest is the cost of money that he is effective loaning you, so he may balk at that --- I would.  I thought private loans were about 10%-12%, so he is due that with seller financing.  

Why not make it a bit easier (granted relative term) on yourself and amortize over 30 years?    You pay about $5k in interest over the first 5 years, but it gives you some more "breathing room."  Granted, these price points are so small if ~$250/mo makes a difference to you ... but we do have a recession coming (unless you don't believe so...).

Anyway, I just don't see this as offering $150k...  So, not quite sure how to help you structure this from here.

 Hi David,

Thanks for the reply.  I am trying to make this a win-win for both of us.  He is asking almost double what the building is currently worth (according to nearby comps of similar commercial buildings).  I could offer $150K for 0% interest, but I think structuring it this way would help us both out.  I don't want to stretch it out over 30 years and I don't think he would want to either.

He is never going to sell the building for $150K, and I would never buy it for that amount outright.  If he agrees to seller finance it, he would get his money (via interest) and I would save on interest from a regular bank.  Win-Win for both of us (maybe?).  

This is my first time doing something like this, so maybe I am missing something or should structure it differently.

Quote from @Cason Acor:

@John Roberts where did you come up with 12% interest for the seller carry? I haven't even seen hard money rates that high yet. Unless there's something big I'm missing here, I'd offer him between 6-8%.

 I did the 12% rate so that I could keep the Purchase Price low ($100K) and he will also get his $150K via interest paid over the life of the loan.  

Hi Everyone.  Thanks for all of the advice and replies.

We have decided to offer him the $150K, but only through seller financing.  Let me know if this makes sense and if you would modify anything before I meet with him.  Should I structure this differently?  

My thinking on doing $100K (with $25k down) with a 12% interest rate was to keep the building's assessed value from increasing with a $150K sale price and it might save him in capital gains taxes as well. Not sure how the 12% interest rate would affect his taxes though.  I added the 5-year Prepayment penalty so that he knew he would get most of his interest money.  He may want to increase this, not sure.  My thought was to write him a check for the $46K after the 5-year prepayment clause is up and save another $15K on interest.  

Also, let me know of any advantages (benefits) that I could point out to him to make him more likely to accept our offer. 

Building Price	$ 100,000.00		Interest Rate:	12%
Down Payment:	$ 25,000.00		Loan Term:	10 years
Loan amount:	$ 75,000.00
Monthly Payment:	$ 1,076.03
Total Interest Paid (life of loan):	$ 54,124.00
Total Interest Paid (after 5 years):	$ 39,368.00
Remaining Balance (after 5 years)	$ 46,578.00
No Prepayment penalty after 5 years.

Quote from @Jim Flynn:

Quote from @John Roberts:

My wife and I own a restaurant and we lease the building.  Our landlord just inherited the building from his dad that just recently passed away and he really doesn't want to be a landlord.  We are in a very small rural town and there are not any other options if we decide (or are forced) to leave.

Our landlord came to us last week and let us know that he wants to sell our building. Our lease is up for renewal and he was wanting to know if we would be interested in purchasing it. We said sure, how much are you thinking? He comes back with an asking price that is double the appraised value of the building. I asked why so high, and he said that a 'normal' person would only want to pay the appraised value, but since we have a revenue-producing business, we should pay more. His logic was that if we continue to lease at our current rate, we would pay more in 20 years' time versus just buying the building. I told him I am almost 50 and I am not sure I will be around in 20 years to realize the great savings that he is talking about.

Am I missing something? Should I pay more than the appraised value simply because my business is located in this building? He will eventually sell it to someone else, which is also a concern of ours. He put a clause in the new lease for a 60-day notice.  Meaning if he gets the building under contract for sale, he (or the new owner) can give us a 60-day notice to vacate the building.  Can we do anything now to protect ourselves from our next landlord?

Any and all advice is needed and certainly welcomed!

Thanks.

What is he asking for the building? Has it been appraised?

 Hi Jim,  he is asking $150K for the building.  It has not been formally appraised.  We were just looking at comps that recently sold on the town square where we are located.

Thanks.

Quote from @Brock Dowis:

Flipperforce is awesome.  But as previously mentioned, any app you use, the biggest challenge will be pulling the communication out of your onsite guys. Extremely challenging in my experience. Good luck!

 Does Flipperforce offer timeclock punches in the app?  If not, does anyone use a software package that does this?  Either an all in one, or something that works well on the side.  Thanks.

Hi everyone.  Thanks for all of the advice.  Just to clear a couple of things up.  We haven't done an official appraisal.  We looked at comps of similar commercial buildings that sold around the square that we are on.  The appraised value from the county is about $40k.  Like I said, we are in a very rural area with a county population of a little over 8k people. 

We are currently no longer under a contract and are now month to month.  We didn't have another renewal and the landlord drug his feet trying to sell, so we are now month to month.

Let me know if you have any other questions.  Its nice seeing it from a different perspective.  We are pretty much at a stalemate right now since he put the 60 day clause that he can make us leave if he gets the building under contract to someone else.  I wish there were different options in town, but there just isn't anything.

thanks again.
 

Yeah, I understand that it is worth more to me than any other individual, but I still don't feel I should pay nearly double just because he thinks we have no other options.  We told him that we would go up to $100k, but he won't budge off of the $150k.  

what is the typical language in a lease that covers a landlord selling the building during your lease?

thanks again for all of the advice so far.

Quote from @Jeff S.:

He knows he won’t get more than the appraised value and probably a lot less than if you leave the place vacant, @John Roberts. You’re afraid you’ll be forced out if he sells the place.

You guys are playing a game of chicken with each other.

In fact, if you are a desirable tenant (pay your rent on time, take care of the place, don’t make the landlord crazy, etc.) why would anyone who buys the place want you out, unless they also run a restaurant and want yours? Is this likely? Would the place be easy to re-rent? Do you truly have no other alternatives if you really must move (and/or does he believe that?)

Not a lot to go on here without more info but I suspect you hold stronger cards. A signed lease from a long-term desirable tenant will maintain the value of his appraisal. Don’t forget, you’re providing the cash flow. How much is an empty restaurant worth, unless there are higher and better uses?

There doesn’t appear to be any benefit to you by signing a lease with a 60-day notice clause. It only makes it easier for him to sell, buys him time, and adds risk to your continued tenancy.

From what little you wrote, and I realize we’re talking about your livelihood, I would refuse to sign a lease with the 60-day clause and, assuming it even makes financial sense to you, offer to pay the appraised value. An agent, if he has one, would think clearer on this. You might discuss this with a knowledgeable agent yourself.

You already said he’s an accidental landlord and wants out. Now he runs from you? This is telling.

Hi Jeff.  Thanks for the advice. Like I said earlier, we are in a very rural and small town (our county has a population of 8160).  We do really well with sales and are always busy.  We employ on average about 20 people.  The building right now would appraise for $75-80K (which he admits).  He is asking for $150K just because we have a 'revenue-producing' business in this location.  I know that is not a whole lot of money in the grand scheme of things, but $70K over appraisal is still ludacris and not very business smart, which we told him and he quit offering it to us for a few weeks.  Just this week he started asking us again to purchase it, but still at the $150K.  He isn't listing it through an agent, just on his own.

I feel that we are a very desirable tenant.  We have been in this building for 11 years this month, never late on a rent payment, and have paid for every single improvement that has turned this building from an empty shell to a full-service restaurant.  This building is almost a hundred years old and was once an appliance repair building.  We have spent tens of thousands of dollars over the last 11 years to make this a restaurant and what it is today.  I don't think it would be hard to rent it out again if the new tenant was wanting to run a restaurant.  It is pretty much a turn-key situation, minus our equipment of course. We are the busiest and most popular restaurant in town.  

I am going to object to the 60-day clause, but this guy has the money and is stubborn enough to make us leave if we don't sign the new lease.  What is the normal language in a lease agreement for the owner selling the building while it is leased?

Thanks again for everyone's input.  It's nice to know that I am not the crazy one. 

Quote from @Michael Wooldridge:

Quote from @John Roberts:

Quote from @Cason Acor:

So have you signed your lease renewal yet, or no? No reasonable person would pay more than the appraised value for a property, whether they run a business in the building or not. Your landlord’s logic is incorrect. Especially if you have to get a loan to buy the building. No lender will give you money over the appraised value, regardless of what your contract price is. 

 Hi Cason,  we have not signed the lease renewal yet.  I think he was holding out hope that we would purchase the building.  I told him that his logic was flawed and that a bank wouldn't loan for more than the appraised value.  He suggested we get a small business loan to cover the difference.  And he is a CPA.  I just don't get it....

 I hate to say this but it sounds like his logic has to do with the fact that he knows you don’t have another option in town. Have you researched hard to see if there are any other options to move to? 

Because if there really isn’t the alternative isn’t a great option. Which is to see if you can tempt him with some type of premium (i.e. 10% over appraisal) which means you need cash on hand. Not ideal. Or a true relocation of business. 

Sorry to hear this is happening to you. I’d look hard at the market to see if there are really no other options sounds like he is trying to force the issue. 

Hi Michael,

unfortunately, there are no other viable options for our restaurant.  There is an empty building and the owner said he would build it out if we signed a 5-year lease, but it has absolutely NO parking.  This would work if we were strictly take-out, but there is room for about 5 vehicles to park.

I don't trust our new landlord at all either.  He will only speak with my wife and he literally ran out of the store when she told him that she is going in the back to get me.  He told her that we are crazy for paying rent on the place for the next 20 years when the rent payment is about the same as buying it (which it isn't).  This guy thinks he knows it all and will not negotiate on price.  We asked him his bottom dollar and he said this was it.  

Quote from @Cason Acor:

So have you signed your lease renewal yet, or no? No reasonable person would pay more than the appraised value for a property, whether they run a business in the building or not. Your landlord’s logic is incorrect. Especially if you have to get a loan to buy the building. No lender will give you money over the appraised value, regardless of what your contract price is. 

 Hi Cason,  we have not signed the lease renewal yet.  I think he was holding out hope that we would purchase the building.  I told him that his logic was flawed and that a bank wouldn't loan for more than the appraised value.  He suggested we get a small business loan to cover the difference.  And he is a CPA.  I just don't get it....