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Small Business Real Estate Question
Posted on 6/6/24 at 9:32 am
Posted on 6/6/24 at 9:32 am
A friend owns a small hardware store that they have been renting for decades at this point. The owner is selling the building for a big payday because values have really gone up in that area. He wants like $1.5m for the building. I think my friend does well for what it is, but that seems like a lot of cost for the business hes in to me.
Since I don't have specific numbers other than the building price, what are some generic vehicles of borrowing that money that I could recommend to him? I don't know how some of the small business loans work for existing businesses. He is thinking about using equity from his house (probably like $300-400k) to buy the property himself and own it himself. Can you legally charge a business you work at reasonable rent for the property?
Since I don't have specific numbers other than the building price, what are some generic vehicles of borrowing that money that I could recommend to him? I don't know how some of the small business loans work for existing businesses. He is thinking about using equity from his house (probably like $300-400k) to buy the property himself and own it himself. Can you legally charge a business you work at reasonable rent for the property?
6
Posted on 6/6/24 at 9:39 am to VolSquatch
Of course. You just set up a separate LLC to own the real estate and then rent it to the business. Happens all the time
Posted on 6/6/24 at 9:39 am to VolSquatch
Maybe the owner will finance for him.
Posted on 6/6/24 at 9:41 am to ItzMe1972
quote:
Maybe the owner will finance for him.
Its an older guy I think. Pretty sure he is looking for a payday to enjoy life a little bit.
Posted on 6/6/24 at 10:12 am to VolSquatch
SBA 504 loan
Traditional bank loan (banks like real estate loans that are owner occupied)
Traditional bank loan (banks like real estate loans that are owner occupied)
This post was edited on 6/6/24 at 10:13 am
Posted on 6/7/24 at 8:10 am to VolSquatch
Commercial real estate isn’t doing great most places. Your friend should let the owner put a sale sign out so he can see the lack of interest or have another person negotiate the owner down for him. Your friend should also scout some other locations for a possible move to get a feeling for actual market value.
Posted on 6/7/24 at 9:02 am to VolSquatch
Good morning. I am a commercial lender and we absolutely love owner occupied real estate.
It can be purchased in an llc and rented back to business at a reasonable rate. Usually most owners pay enough for payment.
The business would corporate guarantee the loan.
You can get up to 85% financing conventionally with most banks but if you need more leverage you can do SBA programs that can 90% plus percent.
It can be purchased in an llc and rented back to business at a reasonable rate. Usually most owners pay enough for payment.
The business would corporate guarantee the loan.
You can get up to 85% financing conventionally with most banks but if you need more leverage you can do SBA programs that can 90% plus percent.
Posted on 6/7/24 at 9:20 am to VolSquatch
quote:
Can you legally charge a business you work at reasonable rent for the property?
Yes, that is how you "keep the money in the family" and succeed!
Posted on 6/7/24 at 9:31 am to VolSquatch
quote:
Its an older guy I think. Pretty sure he is looking for a payday to enjoy life a little bit.
Yeah but here's a couple thoughts, your friend could give him a small lump sum and then pay him back as a "loan" in the range of 7-10% and both sides be very happy with that. Where's the guy going to get an almost guaranteed 7-10% ROI for say 10 years and commercial lending loans are probably 8-12% I'd assume right now.
I disagree with the above about commercial property. Some commercial isn't doing well like large office buildings, but the cost of small business property is absolutely VERY high. The cost to buy and build say a fast food restaurant is up multiples from not long ago and I'm not just talking about the cost of construction, the raw land is up a lot also.
A lot of small business owners don't want to be invested in real estate, there's plenty of times that makes sense. I bought my office for $250,000 in 2017 and its now worth north of $600k and I have "rent controlled" monthly notes due to my loan. That can be a gamble, takes equity to do that many don't have, etc. But it can also be a very good way to make money if you do it right.
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