Can You Wholesale/flip A Business?
I am new to REI and hope that one of the more experience investors can give me some guidance. I have found a small dry cleaner for sale that is listed with a realtor for less than $30K in a upscale area. My initial research shows that the price is below FMV. Can I wholesale/flip it to an investor or to a dry cleaner looking to expand? How would I go about doing that? Thanks for the help!
AK
There are many ways to do it, but here is an example. There is no one way to do it, any way that works is the right one.
Put a down payment on the business so that they know you are serious and lock yuour position in. Make the intent to buy contract for 60-90 days and also assumable. During that time you can find a buyer and sell your contract and position for quick money. If you are really good you could just have the seller finance the sale with a small down payment, and make the loan assumable, you would get paid while you are selling it.
Good Luck,
Kyle
Thanks Kyle! Your suggestion was confirmed what I was thinking.
Keep this in mind. When you assign the opportunity to another entity/person, the contract stipulates that the individual or company is allowed time to investigate the business in question. Business negotiations can take several months even for small deals. I have experience putting together well over two hundred deals. Make sure you truly know what you are doing otherwise you can be sued for specific performance and very quickly lose you earnest money and very possibly compensatory damages for their tying up the business and not allowing other "qualified" suitors inspect the business. Do your homework on this one, if you don’t you can be on the hook for $30K and liable for a business. Additionally every business that I investigated that was under priced was done so for a reason. Small business owners typically over value their business for personal reasons, self worth, pride, etc. Make sure you have access to their books, their employees, and their top clients. Plus ask for personal bank statement from the owners. This is a quick test to see if they are truly making what they state. There is so much more but I don’t have the room to get into it. Just make sure you do your homework.
Respectfully,
Phil ~
Due diligence for the transaction is required; you may be opening up a whole new can of worms on this one. With business purchases a specialized attorney is invaluable. Have investigated the lease complexity? The quick sale may be due to the upcoming HUGE rent increase or lease expiration. Moving this type of business can change everything. BE CAREFUL! Creating/signing legal transaction contracts without legal counsel has serious implications.
Eric & Rosa
[addsig]
Thanks all for the advice! I'm beginning to think this may be too complicated a deal for a newbie. I've seen deals blow up based on what was found out in due diligence - so I may have to pass on this type of investing for now and just stick with residential properties. Thanks again.