Quote:
Originally Posted by KaraG
Love it.... Where did your family find the businesses? Are they business brokers? Run ads offering to buy businesses?
|
They aren't business brokers, they found them mostly through commercial real estate brokers.
The main thing is patience. Between our last business and our current one, we spent around 6 years looking for a business before finally settling for one. The first business my mom started was a small cafe in a mall. The restaurant was vacant because the previous owner couldn't make the lease payments. At the end of the first year it was making $100k in NET income.
She eventually gave it to her brother because he moved to America with his family with only a few hundred dollars. Everything was up and running for him to takeover and he did fine. It got them a beautiful house, gave his daughter a good education etc. They then wanted to buy a small full-service resort and he asked my mom for her opinion and she told him not to do it because it will be much for him to handle. This property was another failing property, so it was not turn-key. He bought it anyways and was between breaking-even to losing slightly each year. However, a few years later the local real estate market went up a lot and he found a buyer that gave him a net gain of $1 million.
They retired for a few years, but then wanted to buy another business because money was getting low. They started looking and within a year found a full-service hotel that was making a profit, but had declining revenue and net income. He asked my mom's opinion again and she told him the financials are declining because there is a lot of new competition in that area. The style of this hotel was more motel-ish, even though the quality wasn't. This was during the peak of the real estate market and he bought it anyways and now they are having problems making loan payments years later. There is no way they can sell it for what they paid. They will be lucky to sell it for the remaining loan balance. The point of the story is, be patient. They bought two businesses during the time we were looking for one. The first one they got lucky real estate prices went up, the second one is going to leave them with nothing. So, be patient, patient, patient!
I was going to buy a commercial real estate property with two other people. It seemed like a great buy, but when we were trying to close, we found out the owner has a loan that doesn't allow pre-payments. We could assume his loan, but the interest rate was 2% higher than what we got, so we said no, the owner will have to eat the penalty because he didn't disclose this to us. The agent said he would cut his commission and the owner will pay $50k and asked us to cover the rest. This amount was very small considering the purchase price, but I said no deal. Patience is key because one bad decision could make you lose everything.