Commercial (industrial) land owned by a person that is currently occupying half the land with his own auto repair shop.
He wants to develop the other half (making 4 or 5 shops) but is short on funds.
I would like to provide down payment and financing to build the structure. Estimated around $300K.
How would you structure this deal as far as distribution of profits is concerned? How would he make his money? How would I make my money?
I realize there are many ways this can be put together but was wondering if anyone has had a similar experience?
You could simply act as the banker here and provide financing at a market interest rate. This would push most of the risk onto the current owner. Alternatively you could form a joint venture with the owner contributing the property and you the cash splitting the risk/return evenly or pro-rated based upon the value of your initial investment. Once the parcel is built out will the commercial space then be leased or sold to end buyers? This would determine where your profit (if any) will come from.
You be the developer not the money source. Contact all the large auto related company’s like midas , goodyear , aamco , gas stations , car washes and tell them you have a great location you are about to develop. Many of theses large companys will sign long term ground leases and put up the money to build there own stores. Find out how much square footage you can build and then the going rate for cost per sqaure foot to rent. That will give you an estimate of your long term income. Don’t sell it that way you will only profit once. Be Bill Gates and lease it out for the rest of your life.
Ive done this with denny’s restaraunt. Actually I would try restaraunts first because the after market auto repair industry is shrinking.
I think I was not clear in my original post. I can only provide the down payment (I cannot finance the whole thing). So I was wondering if we should put the loan to both of our names and split the profit/losses? He might say that his share of the land is much more than my share of down payment so he should get more of the profit (if any).
He seems to be a very good business man. He does an excellent job runnin his shop.
He may be good at running his business but this does not mean that he is a good land developer. If you are going to enter into this venture you need a partnership agreement or operating agreement (depending upon structure) that spells out each party’s contribution, ownership, share of profit/loss, responsibility to project etc.
A great source of information on this would be firms that lend money on projects such as this. I wold ask how other deals like this were structures in the past and speak to some of those borrowers.
Any reputable firm is going to give you a name or two of previous borrowers.