Often in a business purchase, the seller will require the buyer to sign a letter of intent. This is a non-binding agreement that prohibits the buyer from discussing information about the business to outsiders. The letter also serves to keep the seller from talking to or negotiating with other potential buyers during this time. The letter then allows the buyer to do a more thorough evaluation of the business and for negotiations to continue.
Part of this negotiation includes analysis of the valuation of the business , performed by an appraiser. This valuation is only a starting point, though. The negotiation comes down to an agreement between both parties. The closing of a business deal is the time when both parties and their attorneys get together to sign documents and pass checks around the table. At this point, all the work has been done, and there is no more room for negotiation or changes. Portions of the purchase price may also be allocated to certain payments and business assets: non-compete agreement, trade name , trademarks , and a separate consulting agreement with the seller.
You may also begin to talk with insurance advisors, from whom you will purchase business property and casualty insurance and malpractice insurance from separate companies. A business broker for some business purchases. During this due diligence period, you should:. Hang around the business for a few days; talk to staff, workers, customers. Look at the competition and their positions.
How are they advertising themselves? They had left the garage front and so when we bought it there was this room that had a garage front door. It was a door. Not an architect, but a draftsman. He needed to create some plans for the addition that was already done.
We had to go to the city and get those approved and we were really close to not getting them approved because and they would have had to they would have had us take that carport conversion back to a carport and then we would have lost. It was really honestly a few inches too short to actually have it have there be like a driveway to the side to be able to go into the backyard where we had to put some covered parking because there had to be covered parking on the property. It will be okay. Brandon: This happened to me on my last flip or one of my last flips where I had found out after closing that the garage conversion to part of the house was done without permits and therefore the city or the county.
It was a county property. At the end of the day they would not let me do it. Rebuild it all back up again. They just wanted it completely gone. Brandon: Which of course was so I just turned it into a garage and that flip turned out fine I guess. I mean it would have been a wash probably. Shiloh: For me yes, that really did suck to be honest. You have to tear it down. I just go ballistic like what on earth. Shiloh: Yes. This is a quick tip for that never give a city inspector the lockbox code before you get there because they just get creative and they go and they start looking things.
Shiloh: They start looking around again going back to the house we had in Mesa. Shiloh: Again and it was because he got there like five minutes before we did and he started going through a whole bunch of stuff. That stuff is good. Is it worth it for you to get your little tag out? Amazing as this sounds there was so much meat on the bone when I bought the deal. The frustration comes from the unmet expectation. You know I was a psychology major and they taught us the definition of frustration is interference with the desired goal.
You know like they just freak out. My expectation was it would be smooth. What their risk tolerance is and so yes I just second what you just said. David: Well tell us a little bit about Shiloh. I love your strategy. Shiloh: You know as I was saying in we did those six flips and then we started noticing that there was less and less meat on the bone and was getting harder and harder to find flips that had enough spread to make it worth time for my wife and I to do a flip.
You know my wife is actually in California with my kids at this point so in we moved our family to California because my now eight-year-old daughter wanted to do acting when she was six. We moved our family out in to California. I had a coach who was teaching me because I did a real estate training. Shiloh: I did have a coach and one of the things that he told me and he told me a couple of things that were really really great, but one is he said you need to get an assistant. Anyway going back to what you were saying when in when we found that the the margins were getting smaller we went to another training and it was a pretty inexpensive training in Phoenix that where this guy talked a lot about lease options.
My buddy and I went, my partner and I and we decided, I wonder if we can switch over to this lease option model and so we were running the numbers and running the numbers and we decided you know what I think that we can. There I am in , we had a couple of properties that we still had and so we switched them over to the lease option model. This is specifically our lease option model. We want that to be 75 percent of the ARV.
They come in with an option fee and then so they come in with the option fee. That helps give us some money back. Shiloh: It was great. It was a great contact that I got from another investor so we went. We did all of these loans with him. Brandon: Let me I want to unpack all of that first of all so you find a property that needs to be fixed up. Shiloh: You know I told you about that program that I went to.
I go and I find money. I find money through banks. I have some of my own money and then we partnered with probably 20 people in the last year that bring in money in order to do deals with us. Brandon: Alright so I want to talk on the credit line thing real quick. Are you talking like business lines of credit or are we talking credit cards or what are you talking? Shiloh: Credit cards, business credit cards, signature lines of credit, portfolio loans, home equity loans, any type of loan almost.
Alright so I mean obviously you got to be careful with them. Maybe higher interest, higher payments, whatever, but you are just doing that, but not really. This was originally was a mobile home that had continually been built upon and so it was more structure you know structural built home than it was mobile home.
That one we did have to get a lot of permits on. If you want to fund most of your deal just find really really good deals. Like a hard money lender—job like their job is to get as secure loan as possible so that they win no matter what. The better deal you get, the better chance you find of a hard money lender like that.
Shiloh: We built up that relationship with the hard money lenders until eventually they started giving us those types of loans because they saw our track record. Some are business lines and some are personal. Brandon: Alright so you buy a property with hard money—use in some business lines of credit for however rehabs and whatever. Now the thing is worth way more.
Now you are going to that local community bank. They have solid jobs. They are you know they have a good income. We bring them in because they really want to own their own home. Then we also verify their income so they have to make three times more than the lease amount every month. They go and they take care of things. When we put somebody into these properties we make sure that everything major is going to work on this property.
We are not putting in somebody into a property that has a bad roof or that has the plumbing is shot. All of the little things, we expect them to come and take care of. The option is a separate document than the lease and basically it says you have the option to purchase this property at any time between when you first get the option up until and then whatever time period it is that we decide.
Last year, we did five-year lease options. David: What are some of the benefits of a lease option? Why would somebody want to do that opposed to just being a landlord and renting it out? Shiloh: You know what I mean? You get in my opinion, you get better tenants, people that are going to take care of the property. I had no idea. David: Going to get a great deal.
David: For the area you are in this could work perfect. If we use the lease option model he and I make about three times the amount that we would normally make on a flip. BRRRR investing, buy, rehab, rent, refinance, repeat. You got that. You are combining that with hard money, combined with business lines of credit.
Combined with the lease options like all wrapped in together. Shiloh: Yes so this was a hodgepodge of like three or four different strategies put together. I know I can say no, but then now I am emotionally in like lease options no. They are already living in the house. Shiloh: Exactly. They live in the house. They know exactly what the house is like and so and we put that in the option fee. They see that. They know that and so there are very little closing costs. We just have some title fees about one percent, but it really does cut out so many costs and again so think about that.
Cutting out a lot of the costs and people are happy to do this. Everybody has paid rent. I think.
Brandon: Me? You know like. Brandon: Yes, exactly, yes. It was. I mean every single. Brandon: Like it was like that and so like I got so disheartened with people from doing—now granted I was doing this in a very lower income, rougher neighborhood of Aberdeen, Washington. That was the primary reason. Shiloh what do you do about that? Do not have that or is that where the assistant comes in?
Shiloh: That is where the assistant comes in. I love that idea. David: I have a video like that for my real estate agent business. He was a police officer. He invested in real estate.
Now he buys houses. This is why you should work with him. I send that to people when I first meet them and they know nothing about me. David: That smart people like Brandon would have figured that out. I need money. Shiloh: Well, I mean we do this for the people that want to do the lease options with us, but people that want to like partner up with us. Then they give their money back and then they get interest on their money. We win because now we have somebody coming in with the rehab money.
We have somebody that wants to learn. They learn. Brandon: That is the coolest idea. David: Is that all it takes to trademark something? One second, Brandon. Have you guys seen the episode of The Office where Michael declares bankruptcy? I declared it. I love that this has come in full circle. Brandon: Now that—now you get funding for a real estate deal, they get to learn and you can avoid the—all the high fees and points of hard money.
I am totally stealing this idea to fund my next deals. Shiloh: At the same time we do give you know a good rate to the people. Shiloh: That come in to learn and so it really works out well. I mean when you think about it total cost wise their money is usually just invested for about four months. Shiloh: It worked out great and so it has been awesome all around. It really has. Anyway, keep that up. Alright so. Brandon: Super cool. You know you talk about that statistic, but then again you think about well where was that statistic coming from and then you think oh I wonder if this is why the Dodd Frank Act came out because of the way that they were setting these things up.
If you look at our specific model, our specific model very simple. Shiloh: Types of homes and we connect them with a mortgage company or a mortgage broker. Then when they purchase it, in all honesty their monthly payment is going to go down. Shiloh: It just works. It works for them. Shiloh: My honest guess with all of the people that we have in there I think that ours is going to be much much higher than the average. Yes, that was the idea I was going to go with at some point if I get back into lease options, which I guess I kind of am with mobile homes, but anyway like is—hooking them up with a mortgage person like helping them because most people can get mortgage if they just know how.
Brandon: Great for my friend like yes, great for him—wanting to go be a contractor on his own. Like I love the guy, but at the time I was like dude like you will kill your shot of getting a mortgage if you do this. Brandon: Laws are and rules are so hooking them up with a mortgage lender I wonder could you even require it? Like you have to meet once a quarter for the entire lease option with the mortgage person. Is that weird? Have you ever thought of that? That would be something to look into.
This is so smart. Here is a Quick Tip for you one of the easiest ways you can protect your properties is investing in a great security system.
A business deal refers to a mutual agreement or communication between two or more a seller and a buyer) who want to do business together by exchanging goods, To get the best out of a business deal, the parties involved need to put in. I put that knowledge to work, and in my career have negotiated many hundreds if not thousands of contracts and deals. Some deals were quite.
By far, my personal recommendation and the one I use in my own home is Simply Safe. Simply Safe is awesome. I really like it. Go to simplysafe. Shiloh: Good question and so you know we really do focus on the lease option. Shiloh: Yes, subject to is different in that a lot of times you go to somebody that may be having a hard time financially with the property and then you come over and you negotiate with them to keep their mortgage in place.
That is a different animal than the lease option. Have you ever done a lease option agreement with a seller for six months then lease option the property to a buyer for three months?
enter site I was running numbers and wanted to know if someone has done this and if so how successful was it? The reason why is because we want to be a little more involved with the property. We want to keep the property for a longer period of time because as the people are in there they are paying down on mortgage on the property. We like to do the year terms. Brandon: Cool. What about this as I can either do a lease option contract or.
Brandon: A rental agreement and a separate option agreement. Which is better in your opinion? Like one document or two? You have a lease agreement and then you have this separate side contract, which is an option to buy the property. Shiloh: That just helps keep you more safe when it comes to legal reasons and things like that. Does that matter and if it does matter are there ways to improve the likelihood that a tenant will exercise his or her option? Brandon: Alright the last one here.
My tenant wants to buy my property. What are some tips I can give them to improve it? Especially if you do it like with a year or two in advance notice. They have time to actually do the things that they need to do. Brandon: Yes, there you go. Alright awesome well that is the end of the Fire Round. Number one what is your favorite real estate related both Shiloh?
Can I switch over to business books. I love that book. Shiloh: Yes, the story of Phil Knight you know that book was very very helpful for me especially more recently because if you read that book you hear his story of you know building and every month you know or every year his business was like you know doubling in size, doubling in size, and he was having the hardest time going to banks and getting funding for his business.
I really like that book in kind of motivating me to take them head on.
Brandon: There you go fantastic. Alright David. David: Next question would be yes since you took my second one. That was a really good answer though. Big challenge Bob. Tell me a little bit about some of your hobbies. What is it that you like to do? Shiloh: You know, I have different hobbies for different people like I love to go on dates with my wife. We like to go out to dinner and go to movie and have a great time with that. With my oldest two kids well my oldest daughter we went down to Costa Rica recently, I had a wonderful time. Beautiful, the food is great.
We went zip lining. With my son, I love to go deep sea fishing with him. Then my eight-year-old daughter we rollerblade to 7-Eleven and we get slurpies together. My three-year-old I like to build trains with him. Those are my hobbies. Brandon: I went deep-sea fishing one time and my dad was out with a buddy of mine. We went out on the boat and we got out there and all of the sudden like the waves hit so hard and so terribly like I mean our boat was going like 30 feet feet up in the air.
I mean it was I died for like an hour. Like I remember just laying on the floor of the boat just puking, but not being able to like get up to do anything about it and they finally turned the boat around and it only ended up being a two hour tour instead of the whole day. Brandon: That was the worst day of my life. Hands down. Shiloh: That does sound like a true fishing story where everything gets embellished just a bit. Brandon: Oh no, oh no it was that bad. It was so bad I passed out I was so sick.
I mean I just passed out and it was the worst experience of my life. Oh man. Anyway okay moving on. What do you think sets apart successful real estate investors from all of those who give up. They fail or they just plain never get started? I think that you know we talked about the cash flow quadrants. We talked about the different mindsets.
I think that it does have a lot to do with mindset. The employee mindset is very much about safety and security. They want to make sure you know I go to work. I get my 9-to I get my you know paycheck and I feel secure with that. I can lose it all. You know what I mean? Shiloh: Definitely this is one thing I do want to say.
You definitely need to vet the people that you partner with. In , I partnered with somebody else up in Phoenix on two deals. They went very very poorly and I lost about 70, between the two deals. I learned a lot from partnering with that person about what to do and what not to do when it comes to partnerships.
Brandon: Ouch. Any pieces of wisdom there on what not to do? Shiloh: Yes so definitely vet the person. Do you have any offers on them yet? I was just really excited. You need to make sure that those properties are done well.
You should definitely read the contract well. Vet the person. Talk with other people that they have invested with. David: Brandon and I had an attorney on the podcasts that was talking. Read this contract and tell me what you think? Thank you for that, Shiloh. David: Last question where can people find out more about you? I am putting up some more information about lease options on there. They can Google me.
I have stuff on Google about me. I have different what do you call it? You know educational videos when it comes to therapy and parenting. Again, I just I have a lot of different things. You can Google me. You can send me an email through my websites. Brandon: Without Shiloh we got to get out of here. Thanks for coming on the show today it has been fantastic. I love your story I love your journey. You got some creative finance stuff going on. I love that. Keep it up. Shiloh: Thanks man and thanks for letting me come on the podcast with you guys, this was great.
Brandon: Yes, thank you. Alrighty, that was our show with Shiloh Lundahl. I think so. What do you think?
Finally, it is essential that the acquirer be comfortable at this stage with any potential liabilities—such as environmental exposures, retiree health-care liabilities, or class action suits—that could materially affect the price of the transaction. Removed from Red Folder Red Folder 0. The challenges of managing a deal team are, in essence, much the same as those of any large project: how can you bring a large team with a variety of skills and agendas together to quickly achieve an objective that not everyone may agree with? The danger of this approach is that talks will get stalled on relatively trivial items, exhausting the hard-won goodwill gained in earlier stages and affording openings for rival bidders. Brandon: I believe I read the other day that that book is the number three best-selling book on BiggerPockets.
I think that means peace or something. Anyway, yes fantastic show. I love people who do like creative finance. I mean I love all people, but I have a special place in my heart for people who figure out how to put together deals using multiple different creative strategies. He combines different things. Yes, I like that.