The Magic of Low Multiple + Growth

For those up to a certain whatever the termination date is of those warranties, most people will hold back a portion of the purchase price in an escrow account for say 18 months, which is kind of like the bank, the piggy bank for any RWI breaches. You can understand why a seller would not like that. And so regardless of your deal, I think it's a tremendous value add for your offer as a buyer to…

I'm going to place an RWI insurance policy that acts in lieu of this escrow. So if there is a breach, you actually go to the insurance company and file a claim and the insurance company pays out, pays you for the breach as opposed to going to the escrow account where some of the seller's money has been held up in presumably a poor interest rate environment, you know, poor interest rate account.

I think it makes your offer more attractive compared to most buyers that aren't including that in their offer. You know, I always like to make the window sticker as high as possible. So the top line price may have been actually higher than 5.3, where I would include like the value of the RWI and so forth.

Right. The value of, not that I had a seller note on this deal, but the value of interest on the seller note, the value of seller's compensation during transition period, just to make that window sticker pop. That was kind of my strategy. So you can kind of add it back in.

Whether or not that works and that every seller appreciates that or not, or if they just skipped the line that has cash at closing. I don't know. Probably depends on the seller.

Okay. All right. And so how on the seller note piece, the no seller note piece, you're. I assume you were going to go after this with an SBA loan.

Yep. So context that's relevant before I get to that is as I mentioned, I penciled the business as 2.3 and the real estate as 3.0. I ended up actually, you know, I kind of asked myself the question, do I at this stage of my life do I want to be a business investor or a real estate investor and the returns on the business are much higher and more attractive. And that's where I wanted to be.

I didn't actually want the real estate and that's why it had been on the market. And I think in part, as well as you had business buyers that just wanted the business, you had real estate buyers that just wanted the real estate. No one could pull it together.

And so this 5.3 offer was, even though it was a fair market offer, you can't say it wasn't. It was on the market for a year and a half and it was the best offer they got. It was below what I think people would say is market for the pieces.

And then I, I identified that. I well considered it for a little bit. I quickly decided I just want to be a business owner for now, this stage of my life.

I'm not, I don't want to own the real estate. So I wholesaled the real estate to a commercial real estate investor for 3.3 million, which reduced my purchase price on the business to 2.0 million. And wholesale is kind of like a sale leaseback, except it happens before closing.