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Can a seller take out a mortgage on his business, and keep the equity tax free as a way of financing? No debt.

This building was built in 1929, and has the potential of becoming a historic site. The owners father and grandfather started the business 70 years ago. the current owner has been running it for 30years. Reason he is selling is he has heart problems. The store has 2 gas pumps, tanks have been upgraded and are good for 30 years. There is a post office that has appx. 250-300 boxes, PO pays $214/ mth. 2 new compressors, new drywells, new roof on back of building. It has a butcher area for meats and deer processing. Asking $500k and he wants $500 to look at his books. Does not want to show the world and no buyers. Also, owner says $100k in stock (food and other stuff), and this business is debt free.

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Answers (3)
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Mar 24, 2017
Andrew Rogerson
Rogerson Business Services
Certified Business Broker
Sacramento County, CA
Premium Broker

Your first place to start is with an EPA inspection. The EPA have rules in place to protect the environment. As this business includes gas pumps that goes back many years there could be nasty surprises including who pays for the inspections. Also, be aware there are Phase 1 and Phase 2 inspections. If you intend getting third party finance, start those discussions early once you get the results of the inspections. Clear that hurdle then move forward from there.

Jan 18, 2010
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The BAF Group LLC
MD

To take out a Mortgage, you need to show the Bank that you own the Property or Business. If you sell it, the Bank will demand the note be paid. And the Buyer will demand that he be granted clear Title on the property, in order to get Title Insurance. You might be able to do what you are asking with some sort of Installment Purchase or a Lease, where a large portion of the Lease is paid toward Equity. Actual Settlement would not occur until some point that is mutually agreed by both parties, perhaps years down the road. But that is a dangerous game and if the Bank discovers the situation, you could be in for a world of hurt, because this could trigger an acceleration of the Mortgage by the Bank. You need to carefully talk this over with a specialized Real Estate Attorney. And an Accountant. And you can't keep the Equity Tax FREE; at SOME POINT, you will need to pay Capital Gains. I would do it now, before Congress increases the Taxes on such gains, because of the deficit the Government is going to need to overcome, at some time in the future.

As for asking for $500 to look at his books, I would be damned if I would do that! Either he wants to sell or he does not. He can ask for a Non-Disclosure Agreement and a Personal Finance Statement from the Buyer, to make certain he is qualified to make such a purchase. But if I were the Buyer, I would tell him I wanted $1,000 for my time, in looking over his books! How do I know whether his business is worth spit, without looking at his books? I understand his concern; but that ain't the way to overcome it.

Jan 18, 2010

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