Gday all,
i’ve found a commercial property deal as follows:
take away shop in large town (i wont tell you where)
included in the sale will be a two bedroom apartment with a living area, kitchen, laundry and office plus shop.
the shop will include, all cooking plant and equipment needed to run a successful food business such as griller, toasters, cake fridge, coffee machine and grinder, cool room, drink fridges, pay phone, ice confectionary fridge, cigarette display and cash registers.
cost is 120,000 plus gst
the owners will lease back for 3×3 or 4×4 year lease at 800 dollars a week.
what do you guys think? this sounds too good to be true (it probably is)
my concerns at this stage is,
how long has the business been there,
can they afford to pay 800 a week,
who pays for maintenance, if me as the owner how much will that be a year on average.
i’m off to have a look at it on saturday.
can anyone tell me if i’ve missed anything?
what should i look out for, i would love to read their books but i suspect this may not be possible.
i will definetly ask for the last several years worth of maintenance costs so i can average out what i will have to pay.
your thoughts would be greatly appreciated on this one.
cheers all
shaunLead, Follow or get out of the bloody way
Hi Shaun,
You are definitely on the right track re your investigating ( personally i dont touch commercial by chioce however have friends that have done quite nicely )
I’m in Qld dont know about whichever state you are in. Food outlets are the ultimate two way street Kill you or make you rich. Do plenty of homework.
Now if they are selling, and you are a serious potential buyer, they have got to show you their books.
Then i would get my solicitor to also request them from their accountant ( this was one of the times i looked at delving into commercial i had and this paticular thing caught them out, (they showed me one set of books and their accountant presented my solicitor with another set. needless to say we went no further and the $200 for searches etc was well spent )
The one thing you should never ever cut corners on is research,, have your solicitor do all the standard company /personal background etc etc. tell your solicitor you feel a little uneasy. And for that matter when you are having a look at the property talk to the owners and ask them why they are putting it up for sale. Usually business people dont feel threatened by realistic questions and if they do i would take this as a red flag…..
You dont mention size of shop site etc and region so its hard to speculate on pricing however if residence and trade the amount does seem really low. If there is a genuine reason that you feel comfortable with, then after you do all your figures and have your solicitor draw up the contract for the three X three options so you know your interests are protected then what is the worst that can happen?Personally I always look at the worst case scenario and if i feel i can wear it, I go for it.
Good luck
Mthanks for that.
i dont want to mention the town for obvious reasons, however the population is above 50,000. for this area 120k is low for the shop.
the add doesnt give shop size however it is a takeaway shop in an area described as
“the store is situated in an area bounded by homebase, a major vehicle retailer and a number of high profile businesses, as well as a residential area”.
i’ve rang the RE agent involved and i have a meeting with him friday to discuss details of the sale prior to looking at the property on the saturday.
i will do as you advise and get solicitor and accountant to look at the books etc.
the deal just doesnt seem right, but it may just be a distressed seller, who’s accountant has told them to do it this way. so at least its worth looking into.
thanks for your help
cheers mate
shaunLead, Follow or get out of the bloody way
Please let us know how you travel.
Hope it all is as good as it sounds and yes definitely worht looking at
and by the by I think your quote is tops….. and pretty much how i feel.
Good Luck
Mhi all, an update.
i rang the agent again, after speaking to the accountant to find out more details.
i got a copy of the compilation report (this shows costs and expenses) profit after expenses is around 120k.
as i will take on everything, the current owner owes 600 a week for the equipment. ok my profits gone down from 800 a week to 200.
at this stage i’m not really sure what the owner is wanting to do.
do i own everything and pay it off and he still takes home all profit, leaving me with a COCR of around 5% (hardley worth it and i will not bother)
or does he intend to run the business for me in which case after expenses i keep the 120k a year and take on all responsibilities for running the business, ie pay for replacement of equipment etc as required.
will let you know how i get on
cheers
shaunLead, Follow or get out of the bloody way
A rule of thumb I use in small business is if the rent is in excess of 10% of turnover it`s probably not viable.
[email protected] Always have cashflow positive Tasmanian commercial properties
availableHi Shaunwalker
Check that McDonalds or some other large takeaway biz is not moving in nearby. Check council that the property and business complies, pizza shop near me was ordered by council to instal a greasetrap for $30K.
Value the shop without the business, they might declare bankrupt & go, you might have to sell it empty.
Don’t take on the $600 pw debt for the equipment for their business. They must rent/lease/borrow for themselves. Otherwise, they will not look after it. If they default and skip, you ar eleft owing $600 pw, lender will forclose, food equipment sells for peanuts at auctions, you lose.
A factor in the value of the shop is the stability and security of the business and tenant.
Usually the tenant pays all outgoings, inside maintenance, energy, water, council rates,licences, periodic inspections like health, fire, etc. PO only pays building insurance.
Commercial leases differ considerably from residential, and enforcement of payment of rent arrears is totally different, so are all the other lease clauses. There are many different leases and extra clauses to protect the PO, read as many as you can. Best bond is an irrevocable bank guarantee, redeemable at your discretion.
Commercial leases in NSW can have clauses allowing the PO to lockup the premises after rent arrears reach 2 months. I collected rent arrears once from a very busy newsagent / takeaway shop while being accompanied by a security guard, locksmith, big chain and padlock, and 5 minutes notice to lockup. Better get your ducks all in a row before you buy this one.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
thanks crest,
i will speak to the owner tomorrow (friday) and find out exactly what he’s trying to do. paying for equipment is a bit dodgy. why he doesnt just sell me the building and lease it back to me, seems to make more sense. taking on all his debt for pittance isnt going to happen, especially for a 5% return. as i said earlier, i’m not sure if i take on all debt and assets and get profits from turnover, or is he just after someone to take on his debt and bugger all return.
the area is a good area (its my home town). theres no mcdonalds going up in that area.
and it is considered a good area, plenty of business’s around and plenty of residential.
will keep you all informed how i go.
cheers
shaunLead, Follow or get out of the bloody way
Hey Shaunwalker
Any update on your takeaway venture ? I’m interested in commercial property.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
If you bought it for $120000 and had a 20% deposit, the interest repayment would be about $140 per week plus principal. that leaves you with a huge return. check for any similar properties in the area, previouse sales to see if the property is priced right(they could be increasing the rent to increase the value of the property). you could get an agent that managers comercial rentals to do a rental valuation to see if the property is realy worth $800 per week. If it works out well then it looks like a deal that could put you one step closer to retirement.
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