A gas station operator called me and said:
“I’m already paying NNN rent. Why don’t I just buy the building and stop throwing money away?”
It’s a great idea, but you have to do your homework first.
The landlord bought the property not too long ago for $1.34 million. They’ve made no improvements yet now want $1.45 million based purely on the fact that they’ve held it briefly and think demand is strong.
The property produces $90,000 in net operating income (NOI).
The landlord is sitting pretty with a 6.6% cap rate.
However, cap rates in that submarket have been increasing. Recent comps are trading around 7.5%–7.8% due to the higher cost of capital.
Let’s say the appraiser lands at a 7.5% cap:
$90,000 ÷ 0.075 = $1.2 million appraised value.
Now let’s run the numbers the SBA lender will care about:
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The SBA will lend up to the lower of 85% of the purchase price or the appraised value of a special-use property.
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85% of $1.2MM = $1.02 million max loan
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Seller wants $1.45 million
That leaves the buyer needing to bring $ 430,000 instead of $217,500 in cash to close.
And then comes the common response: “I’ll just have the seller carry a second.”
Potentially, however there are some caveats both parties need to be aware of:
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SBA requires the seller carry on full standby which means no payments for the life of the SBA loan for it to count as equity.
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If it’s not on standby, it doesn’t count, and the buyer still needs to come up with the full gap in cash.
Bottom line:
You might love the property, but the numbers won’t always love you back.
Cap rates moved. Lenders noticed. The value simply isn’t what the seller wants it to be.
Fall in love with the numbers.
Not the canopy. Not the corner lot. Not the dream.
Thinking about buying the building you lease?
Before you make an offer, let’s run the numbers together.
Message me or schedule a consult.
It could save you six figures and a massive headache.
Start Here: https://cre.marcelobermudezinc.com
