All Forum Posts by: Jeremy Lee

Thanks Chris. I should have clarified a bit more but it sound like the buyer is planning to just make the payments according to the existing agreement but might decide at a later point in timepoint (maybe a year out) to do a lump sum payment for the remaining balance. Not sure how this might change anything but it seems like it would make things more confusing. My wife is concerned that my father in law will just say "ok" and have the buyer pay the remaining balance without correctly factoring (or factoring in at all) the interest amount. 

There is some specific wording I'm seeing as follows: "on the unpaid principal at the rate of 5.4% per annum; principal and interest payable in installments of $2643.04 or more on the SAME day of each calendar month" 

Trying to read through the rest of the note is confusing, and I'm not quite sure I'm understanding it in its fulness but another factor is if the buyer defaults and can't make any more payments, my in-laws will reclaim the business (this is in the note).

Hi,

My in-laws have signed a promissory note to privately loan $60k to the buyer of their restaurant over the course of 2 years at an interest rate of 5.4%. The buyer recently told my father in law that she might be interested in shortening the term of the note and pay it off sooner. 

I'm guessing this isn't an uncommon situation but was curious how shortening the term of a private note generally impacts the interest rate if at all. Do sellers usually raise the interest rate in the case that a buyer wants to pay-off a note sooner than the agreed-upon date? Or do they just take the difference of what was paid and what remains and calculate based on the 5.4% interest in this case (or re-calculate based on that interest using an amortization calculator, etc)?

Hey all,

My in-laws are in the process of selling their restaurant and have already signed a purchase agreement with the buyer and are in escrow. They agreed to the buyer's terms that she would put $120k down and seller finance the remaining $60k. They haven't written the promissory note for the seller finance piece yet but in the purchase agreement the broker set the interest to 5.4%. The buyer *just* came back requesting that the interest rate be lowered to 5% and started talking about how the Treasury rate went down yada yada yada... 

My wife and I know very little about selling/buying businesses and my in-laws are the kind who blindly sign contracts so we're just trying to look out for them. 

I did some Googling and read that how interest for a private loan *should* be determined is to first find the Usury Law limit, which in my case (CA) is 10% so you know not to exceed that. Then look at the current prime interest rates (which I think I saw was 5.5% as of 12/20) and to get quotes from local banks for commercial loans for additional comparison. Assuming this is the accurate way to do so, the interest on this private loan should actually be no less than 5.5% - is that correct? Am I missing something? I realize this is a commercial or small business specific transaction so it likely differs from real estate, and so I might not be factoring something in. 

In any case, we have advised my father-in-law not to cave into her requests as it would also mean more paperwork for the broker and potentially drawing things out even longer. 

Any feedback would be appreciated though, so we have something tangible to stand-on as far as explaining why she has no grounds for asking for a lower interest rate (especially after signing the purchase agreement earlier on)

Hi all

First off, and as a disclaimer, I have zero experience in commercial real estate as it pertains to restaurants and businesses, which is what this question focuses on. So please bear with as my understanding may be lacking in various areas.

My in-laws recently went into escrow with a buyer for their restaurant business. They rent the space they're in and the landlord and his broker were very selective about who they wanted to take over. The new owner seems very optimistic and asked if she could transfer ownership and run the business under the new ownership starting on 1/1/19. My father in-law verbally and immediately agreed without any sort of paperwork, etc. She has already initiated processes to transition utilities, services, etc over. 

The broker just got back to my wife this morning and said that the escrow company wants the ABC liquor license sale to close at the same time that the business closes. The broker was initially trying to close the business portion first by 1/15/19 (which I think is why my father in law agreed to the transition date of 1/1/19) where the ABC license would close later and the new owner would just operate under a temporary permit or something along those lines. They were anticipating the ABC license to close 2-3 months later so with this update where the escrow company wants everything to close together, it would mean that escrow of both the business and ABC license wouldn't potentially close until 2-3 months. 

Given all these things, is it advisable for my father in law to not 'hand over the keys' until at least closer to the anticipated close of escrow in the case that it is 2-3 months out? It seems risky for him to continue on with transferring ownership on Jan 1st especially if the new owner suddenly has buyer's remorse... couldn't she just easily back out, take her deposit back and walk away?

Any advice for a situation like this? We would greatly appreciate it.

Thanks!

Thanks Dave! That sounds about right though the numbers might be off in terms of ownership. The split is technically 75% them and 25% me (as opposed to 50/50). I'm not sure how much that matters.

In terms of the "fly in ointment" part, they are in fact "renting" to us but whether it's at fair market value or not I'm entirely sure... how would you determine that? Just look at the going rental rates (from the time we purchased) and subtract the amount that corresponds to the percentage ownership we hold? Is the percentage ownership really as big a deal in this case (e.g. I'm saying it's 25/75 per a private agreement and how my parents have set it up in their will as well but for all intents and purposes, could we treat this as a 50/50 arrangement at least when it comes time to sell under the same circumstance?)

In any case, thanks for the pointers!

Hey all,

I live in a condo here in Southern California that I co-own with my parents as "Tenants in Common." They had a cabin property that they rolled over via 1031 exchange into this condo back in 2007. I put a small downpayment down towards the condo and took a private loan from them that I am paying them back for 25% ownership. This is my primary residence - my parents do not live here. It's just me, my wife and my kids.

We are considering looking for and moving to a single family home in a nearby area and I was wondering if we could go through the same or similar process where my parents would 1031 exchange their ownership in the current property towards a new property and where we would sell our ownership and apply the funds towards the downpayment, etc on the new property accordingly. Is this even possible to do? And if so, what is the process and or the details around it?

One consideration with all this is to avoid getting hit with capital gains taxes. I would assume the 1031 would account for that as far as my parents are concerned but not sure for us as far as our ownership (which would not be qualified as "1031" since this is a primary residence)

Does anyone have experience with doing something like this or suggestions? 

Ditto. I've been 'passively researching' and watching MLS here in Southern CA and it's really difficult. At this point I've been shopping for a duplex or triplex that would ultimately work to house my family and my in-laws. Of course, if a triplex or quad it would be great renting those out too. It's just so expensive in LA/OC. Riverside, Kern and San Bernardino might be the next best bets but it's going to be harder with the distance and managing those properties, whether you try to find someone to manage them for you or you make the drive out those directions. I guess it's a matter of looking for the right deal and having the patience to do so. It seems pretty hopeless out here though. Other solution, if you're not comfortable investing remotely/out of state, is to move to the locale that you're interested in investing in and then it would be considered "investing locally" lol.

So that might  mean that we would agree to buy out my brothers either all up front on on a private loan? 

As far as investing, this place is currently our primary residence. If this were a separate investment property that my parents were renting out and wanted to gift to us (and they do in fact have other properties in this regard) it would be a different story. Since we're living here and co-own it already though, it makes things a little complicated

Regarding "fair" - we have talked about this with my brothers (my parents sat us down) and the possibility of doing something like this. My brothers didn't seem to care much but the issue of "appreciation" was brought up too. Other thing is that my parents have 'helped' them out in various ways whether that was with down payments on their homes, housing without rents, etc so those are other factors in this consideration. My parents don't take lightly the issue of potential 'unfairness' and are trying to sort things out regarding that. They have two other investment properties aside from their primary residence, one of which they want to sell immediately. The other, including their primary, it seems they want to pass onto us. Now how that's divvied up, I don't know - they may want to 'assign' a property per brother and come up with some for of equity/asset trust 'equalization' so we each get a third of all their assets but hold different percentages of any particular asset. Issues and concerns over appreciation would be more or less 'at the risk' of whoever agrees on taking any given property. In a sense, we would be accepting the risk of this place potentially decreasing in value as much as it could appreciate (e.g. if there's an earthquake or other major damage, etc).

Another thing I didn't really think about with all this, more on my parents' side, is the lifetime gift exemption and what impact(s) all this would have on that. We don't really know the size of their estate of course, but presumably they are going to discuss all this when they consult with their lawyer(s).