Monday, November 30, 2009

Buyers and Aspiring Innkeepers - Start your search with your AVAILABLE CASH

The very first thing you should discuss with your agent is your available cash, not how much you want to spend on a property. There are a couple very important reasons why:
  • Some of you aren't aware that you will have to put down 25% for a business loan. You're not just buying a home, you're buying a business. So you can't assume you'll be able to put down as little as a residential loan would allow, unless...
  • If you are able to get an SBA loan (Small Business Administration), then you might be able to put as little as 10% (or less) down, but only if the business' performance meets the criteria set forth by SBA.
Example:

--Property A is listed at $500,000, gross income is $50,000

--Property B is listed at $1,000,000, gross income is $200,000

--The buyer has $125,000 available cash.

--The downpayment for Property A will be $125,000 (25%, sometimes 30%)

--The downpayment for Property B with an SBA loan could potentially be $100,000 if SBA determines they could loan you 90% or $900,000.

In all likelihood, Property B offers a much better cash flow than Property A, whose deficit would have to be subsidized by the buyer's cash on hand until they could increase the business income. But the buyer has already put down their available cash for the downpayment thus leaving zero cash to carry the business . That said, not all properties are strong performing businesses. But it's certainly worth discussing with your agent to find the best scenario for you.

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