Structuring Letter Of Intent On Auto Center
I am looking at buying a 4 bay auto service center. The seller is retiring and is asking 850k for the building and business or 600K for just the building. I want the first option but am afraid the stated revenue is not correct and want to proceed with more advice first. It is in a high traffic area on main 4 lane rd. The seller says annual revenue is 750K. I want to provide a letter of intent and sign a NDA to get more information on the business but I have a few questions because I was wanting to put terms in there, unless this approach has issues.
1. In the sellers case, is there ways the deal could be structured to benefit him e.g. selling business seperate from building, selling inventory seperate, leasing business and building vs. selling. etc..
2. From my research, property taxes are only about 2500 year on the building and the taxable value is only 40K or so. But if I buy it for say 600K, the taxes would skyrocket. In this case, if I were to lease the building, wouldn't the property taxes stay the same??
3. The terms that come to mind are only two main options. Do traditional financing for the 850K with 10-20% down or do creative financing and do a land contract with 85K down and 1% payments on the remaining balance. Is there tax issues here that would be win/win for both parties
My approach from here was to:
1. Decide on what to include in letter of intent
2. Create letter of intent with terms
3. Review 5 years tax returns, Schedule E, etc..
4. Create purchase agreement
I hope this was enough information and that this is the best location for these types of questions.
I would recommend to be in touch with your attorney. When you are buying a business there is SO much more to deal with than simply buying the property.
Lawyers are expensive but i'm not stupid enough not to use one.
Thanks for reading the post. I have been in touch with interviewing lawyers and accountants but for a newbie on this type of deal, I need some more insight to ask the right questions.
i agree i would get an attny. i bought a business {convience mkt.} i used an attny. to buy. it came in handy, the records were " faked" i sued they were forced to buy back i still lost a ton of money but it could have been worse the attny. saved my butt. it was a learning experience, there are "crooks" everywhere "buyer beware".kenmax
Hi dosentoski:
On your #2 question, where you mention assessed value - I am not sure how exactly it works, but can tell you what happened to me. I purchased a vacant commercial lot for $108K (this was slightly below the going rate for such property). At the time it had a taxed assessed value of $4500. The very next year, it jumped to $67,000. Now, I am guessing that my sale of the property triggered a reassessment of value through some type of formula. Anyone know how this works or is it handled differently from location to location?
That is what I am afraid of and was thinking of doing something that would be a win/win for both me and the seller. That is, just lease it from him and let him pay the taxes rather than buying it. Or buy it for a smaller amount and purchase the business for a larger amount to make up for it.