Hi im looking for a business for my client, a cafe or deli catering and was wondering what are the process from start to begining. Pls be detail as i am new What should i ask when i talk to the agent. I know its require of me to ask for financial statement but is it possible to obtain it without submitting contract as i see that is pointless if the number doesnt crunch out. Also how do i determin what my client should pay? Any insights would be appreciated.

Unless you thoroughly understand due dilligence, cash flow, ROI and the very complicated process of business valuation, you should refer this client to a commercial broker.

The thing is Jim my client is my sister so i am able to make mistake, plus i have my team backing me up with some experience. I just want a list of question i should ask and want to know of the process of it. Also how to caculate a good investment. First time for everything right?

do you have a commercial lender/mortgage broker lined up?
does she have the required 20% downpayment? if not, youre going to have to be creative with your negotiations with the sellers.
analyzing cash flow, ROI, cap rates, debt service coverage ratio, etc are important before sending out an offer.
whats her exit strategy?
what are her plans after acquiring the property? and for how long?
if you do find a property, tie it up with a contract and go into further details with your analysis.

partner up with a commercial agent and give him/her majority of the commissions in exchange for the learning experience.

Physical Condition Assessment

Structure Type and Year built
Negative or Positve Grade from Structure
Roof condition and expected life (mold, moisture, venting, etc)
Improvements (Appliances, Fixtures, Paint, Driveways, etc)
Type of heating and cooling and age(boilers, forced air, elec thermostat, etc)
Type of plumbing (copper, shut off valves, etc)
Type of septic/well/etc, age
Insulation types (ceiling, wall, noise)
Past uses along with resulting potential or actual environmental complications
Zoning and other regualtory issues
Building code violations and cases
Status of leases-- economic viability of tenants
Restrictive covenants in leases that might inhibit access to other tenants
General economic conditions in the area
Title
Traffic and accessability issues
Survey-- encroachments, easements, etc.
Likelyhood that seller will pitch in for improvements


Investment Assessment

Motivation for selling
Current Property Taxes and Forecasted
Current Insurance Costs and Forecasted
NOI and Cash on Cash Return
Debt Service Options
Improvement Costs
Exit Strategy guidelines objectives of buying
Seller paying closing costs
Advertising Costs
Calculate time on market and backup plan
Will they carry a portion, take a note, do a equity split, partnership, deferred settlement,etc.

hello , I know when it comes to commercial properties its a different kind of animal. I have a commercial divisiona and would be happy to help as much as I can.

www.cartertmortgage.com/mmoo

Alvin have you done any transaction regarding businesses??? If yes, how many? HOw long have you been in the business? Where are you getting this info, from a book or book plus personal experience. Its strange that you are one of the top members who ask most question and yet you give the most answer as well??

hi TWF

im still new in the commercial business just like you. so 0 transaction in regards to commercial. ive been in the RE business for 2 years. i get my info from books, forums, internet articles, talking and networking with experienced investors, etc. i realize that i dont need to know everything but rather just "enough" to converse and ask questions.

im in the process of getting my first commercial project going in regards to a condo conversion. so im actually learning as i go along.

That must be exciting, hope everything turn out well for you. As for me im so new that it hurts haha. I've been in RE for bout 8months now, have my family as clients, but i hate how asian always look for feng shui. Which really makes everthing much more difficult. Also looking for business for my sister as i mention in the other post. Im also learning as i go, and i actually like commercial better because its alot easier to negotiate, but usually business owner dont sell unless the numbers are dropping or overwhelming competition decides to build a bigger and better similar business. I guess they both have their pro's and con's. Thx for your insight and hope to hear about your success story in the near future.

hey TWF
did you get a chance to answer these questions for your sister? at least this way you can see your results whether your sister can qualify for a commercial deal or not.

Alvin,
A restaurant or deli is a totally different animal when it comes to loaning money. The lender is going to look at the persons business plan and also their restaurant experience. A 20% down payment may not be enough. There is going to have to be 2 different kinds of financing here. One for the restaurant inventory and equipment and another for the real estate.
Chances are that the real estate lender is going to be very wary of loaning money for an untried restaurant or deli.

The better option for this is to lease a site with the option to purchase. This way a purchase will be easier with some track record for the business.

Alvin i've been previewing some business and they all seem to be doing really bad. No wonder they want to sell. But theres this one Cafe/deli shop which was pretty decent, gross sales 12-13k minus 3200 for rent, thats included PG&E. 5days/week 8hours/day. So lets say if my sis bought it she can work by herself and hire a partimer or full timer and still keep 4-6k. The thing is the land lord is difficult to deal with, he doesnt allow us to put a hood for further improvement in menu/product. I've also check out some laundromat, and have a friend of my brother n law as an info person, considering his family owns several of them. I got some very useful insights on what to ask for and such but never got the chance since they were all either in bad condition or had another bigger/newer/cleaner store open next door. Sorry for the late reply

Paul so your saying if its not possible to get an sba loan then they should try leasing it to show they can operate it without afftecting profit margin? Actually my sis has about 300k for investing, but she is very scared/picky type.
There were so many nice property i told her to purchase but she checks the feng shui which makes everything alot harder. And if she would have bought it she woulda gain 50k in appreciation. I keep telling her nothing is perfect... and even with feng shui houses still sell. At lower price, but stil profitable. Its hard selling to your family because they dont trust your judgement, and also because im 22 and she's 35 lolz. In her eyes im still a baby, but that will all changed once she see's me investing and making hudge return.
I've just recently started to utilize statistic supplied by NAR, which are very usefull. Maybe that would help some clients from being to deterred.

Ok for what's it's worth i was in the restaurant industry for 10 years and owned my own independant pizza place for 3.Your sister has ablsolutely no idea what she is getting into,if i had 300k here is what i would do if i had no experience.Buy a proven model a franchise that will give you training,have systems in place and a structur to bring in some business.The best types are people that bought franchises and now are struggling,we call them bailouts.

Usually what happens is someone spends over 150k to buy a business but doesn't realize people won't come flooding in on there own.They have poor sales and management and get burned out and desperate to sell.You can buy one of these franchise restaurants turn it around and resell in a year or less for a big profit,my buddy does this with subways all of the time.

Independants that are no namers are a big risk,you have to look at there client base and what kind of name branding they have in the market,a business with a negative image that's an independant can take a year or more to turn around.

I actually specialize in restaurants.

There is a book that gives average values that is put out each year it's called "business reference guide" by tom west and can be found at http://www.businessbrokeragepress.com

good luck

Wow thanks alot Super Realtor, great insight! Would be alot better if you would tell us how he turn it around and also give some numbers to when he bought it, sales price + gross sale, and when he turn it around. How he did it, what kind of marketing? How many different type of franchise have you or your friend had encounter? What type of system they have? Management? If you have the time, pls tell us a story we can learn from. I believe everyone here would really be greatfull. My sister doesn't know much about system but she has own and managed a couple of business before such as donut shop and chinese food shop, so she has some management but they dont do marketing, which i think would increase sales depending on area. Thx again


P.S Great link, havn't got the time to check it out yet as i am working to close a deal, finally!!