Real Estate with business

May 09, 2024

by a searcher from University of Phoenix in Huntersville, NC 28078, USA

I am considering an offer for business + real estate. Seller is offering up to 6.5% financing at 11% with balloon at 60 months for both or lease of real estate. The RE is in a good location and I don't see it going down in value. The way I see it, RE offsets risk. How do I value it in LOI? Should I use seller financing or forego if I have the resources to do so? Is it better to lease and not leverage all capital on this one deal?

ADDED: Also, would you structure this as asset vs. stock? or could it be a combination? This particularly business requires licenses currently held by seller.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Gina, not sure if you are looking to use any outside financing or just Bank financing. I would be happy to talk through various financing options for you. One thing to keep in mind with the real estate. If you lease it with an option to purchase, you could use an SBA 504 loan at a future date and finance 90% of the purchase price via that loan product. Of course the business cash flow has to be sufficient to support the mortgage. But the SBA 504 loan program gives you a 25 year loan term and a fixed rate on 40% of the loan amount with the SBA 504 product. In May that fixed rate was 6.55% for 25 years. So it is a great product for owner-occupied commercial properties.

I am not sure what the length of the term is the seller is offering, but again, happy to discuss various options. You can reach me here or directly at redacted

Reply by a searcher
from University of California, Berkeley in Walnut Creek, CA, USA

for RE valuation I would use NOI/cap rate to get at the valuation of the building. If the seller is including the building in the sale, he should be able to provide the income and expenses of the building so that you can get the NOI. Then you could figure out the market cap rate for that asset type by calling around to some commercial brokers

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