INNOVATE LLC

Frequetly Asked Questions

WHY SHOULD I USE A BROKER?

Selling or buying a commercial property is a complicated process in addition it is one of the most important financial decisions you will make. A Licensed Broker has the training and expertise to guide you through the process in a comfortable and efficient manner. He is a team player who will coordinate the efforts of your professional advisers, such as attorneys and accountants. He has handled many transactions and understands the complexities of selling and buying a commercial property.


HOW DO YOU HANDLE CONFIDENTIALITY?

Transactions handled by INNOVATE are held confidentially by all parties. We understand that public knowledge of a potential sale can affect the attitudes and actions of customers, employees, competitors, lenders, suppliers, or investors, and thus the value of the commercial property. We also want to safeguard the employment status of a potential buyer while he considers a very important change for his future.


WHY BUY A COMMERCIAL PROPERTY INSTEAD OF STARTING ONE?

It may take more money than time to buy a commercial property. It takes more time than money to build one. If you build a new commercial property such as a hotel, you face a lot of uncertainty over the success and desirability of your product or service. Buying an existing hotel takes a lot of the risk out of your decision and often you will make money from day one.


WHAT IS THE BEST COMMERCIAL PROPERTY TO OWN?

Often buyers choose a commercial property with prior knowledge or experience. However, buyers want to own a profitable, well-managed commercial property in a sector that holds a personal interest for them. On the other hand, some buyers may look for opportunities that offer turnaround potential, where they can apply their special skills. In general, there is no sector that is particularly better than another. However, there are specific commercial properties that are more successful than others, even in the same sector. Remember to verify profitability.


HOW IS AN OFFER STRUCTURED?

Most properties sell for one-third to one-half down. The remainder is financed by the Seller, by a bank or through family resources. Sellers generally prefer to receive all cash at closing and some Buyers are able and willing to accommodate them.


WHAT KIND OF FINANCING IS AVAILABLE?

Seller financing (although rare) is usually the cheapest and easiest to obtain. It also tells the Buyer that the seller has confidence in the business. There are no loan fees and the interest rate is usually lower than the bank rates, but the term of the loan is often shorter. Seller notes make up the majority of Buyer financing. Banks will loan money on properties that show a strong earnings history on the tax returns. They require a lot of documentations and the payment of upfront fees. In recent years, bank loans, which are guaranteed by the Small Business Administration, have become very popular and more readily available. Alternatively, family or friends will sometimes offer to help out. They can either provide funds or sign a guarantee for a bank loan.


HOW LONG DOES IT TAKE TO SELL A COMMERCIAL PROPERTY?

It usually takes longer to sell a commercial property than a house. Because of the confidential nature of a commercial property sale, a broker cannot put a For Sale sign on the window. The average time to sell a commercial property is usually between six to eighteen months. However, there are exceptions. Some properties may sell within a month of being put on the market. Others may take several years to attract the right Buyer. A broker seeks out and talks to Buyers everyday. The next one may be just right for a particular commercial property.


HOW DO YOU ADVERTISE A COMMERCIAL PROPERTY FOR SALE?

We advertise on the Internet using several sites. We also use social media to promote and advertise the commercial property. We also advertise in the local newspapers, which generate a large number of calls. We place ads in publications that target particular sectors. We network with members of trade associations. We also receive referrals from attorneys, accountants, and real estate professionals.


DO I NEED AN ATTORNEY AND AN ACCOUNTANT TO BUY/SELL A COMMERCIAL PROPERTY?

Buying or selling a commercial property can be a complicated process. While some commercial properties are sold without the help of accountants and attorneys we strongly recommend that both the buyer and seller engage professionals.


WHAT WILL THE PROCESS OF BUYING/SELLING A COMMERCIAL PROPERTY COST ME?

Commission is generally paid by the seller not the buyer. However, other costs do come into play. Legal and accounting fees are generally required and additional startup costs may also come into play.


WILL THE CURRENT OWNERS TRAIN ME TO RUN THE PROPERTY?

Depending on the complexities of the property and the purchase agreement, the former owner will offer varying levels of training. If agreed by the parties in the purchase agreement, the seller will offer training for two to four weeks at no cost to the new owner.


HOW DO I KNOW THAT THE PROFIT FIGURES THAT THE SELLERS CLAIM ARE TRUE?

As part of the acquisition process you will have to go through "due diligence." During this period the seller is required to present documents to verify his profit numbers. Additionally, you can ask in the purchase agreement to monitor the business for a specific period of time.


WILL I HAVE TO COME UP WITH THE ENTIRE PURCHASE PRICE?

No, while the full purchase price is sometimes required, sellers will frequently provide owner financing to some extent. Additionally a bank may be able to loan up to eighty percent of the purchase price through a loan sponsored by the Small Business Administration.


HOW MUCH MONEY WILL IT TAKE TO BUY A COMMERCIAL PROPERTY?

Properties vary in price a great deal however it would be unlikely that one could buy a commercial property with much less of a down payment than 20 percent of the selling price.


HOW CAN I PREVENT MY EMPLOYEES AND CUSTOMERS THAT I AM SELLING?

Confidentiality is perhaps, the most critical issue for a broker. Virtually every seller doesn't want his employees, customer or vendors to know that his property is for sale. INNOVATE is very careful emphasizing confidentiality throughout the process.


FOR LEASEHOLD PROPERTIES, I HAVE A LONG TERM LEASE WITH MY LANDLORD. AM I GOING TO BE ABLE TO TRANSFER THAT?

Transfer of the lease is crucial to the success of the transaction. It will be almost impossible to consummate a deal unless the lease can be transferred. Leases will have a clause that defines the landlord's rights regarding transfer. Frequently the seller will be required to remain as a guarantor of the lease and often there may be a charge by the landlord for the transfer.


HOW DO I DETERMINE THE VALUE OF MY PROPERTY?

The analysis of your property value or worth is another crucial function of the broker. The Market makes the final determination of value. At INNOVATE, we have tremendous experience in valuing almost any property. Our estimates of value are not "certified valuations" although we can provide this service fee for sellers who enter a listing agreement with us. To determine the market value of your property, you must hire a bank-approved, licensed appraiser.


I OWN THE REAL PROPERTY AND THE BUSINESS, DO I HAVE TO SELL THE REAL PROPERTY?

The property can be sold with the business or the business owner may retain the property and lease it to the buyer for a long term lease and hence earn an ongoing cash flow stream. However, the property can improve the buyer's ability to finance the business. Many buyers prefer to buy both the real and personal properties of the business.


WHAT WILL HAPPEN TO INVENTORY AND RECEIVABLES IN MY BUSINESS?

Most small businesses are sold with the seller retaining cash and accounts receivable. A working level of inventory may be granted to the new owner. If it is not granted, the inventory is calculated and often paid at the day of closing.


WHAT WILL HAPPEN TO DEBT THAT THE SELLER OWES?

Most often, the property is sold free of all debt. This means that the former owner will be responsible for account payable as well as all long term debt.


WHAT RECORDS ARE YOU GOING TO NEED FROM ME TO HELP SELL MY PROPERTY?

The lack of good records is the single most common reason for a commercial property deal to fall apart. Maintaining good books and records is very crucial. This includes accurate financial statements, cash register receipts or whatever records are necessary to prove income and expenses. Current tax returns are also very useful.


WHAT IS THE NET OPERATING INCOME OF A BUSINESS?

The Net Operating Income (NOI) of a business is the total income remaining after subtracting all relevant operating expenses. (NOI = Total Income - Operating Expenses)


WHAT IS THE OVERALL CAPITALIZATION RATE OF A BUSINESS?

It is the NOI divided by the value (or asking price) of the business. (CAP RATE = NOI/Value)

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