Commercial real estate with an existing business?
Hello!  I've been a real estate investor (residential) for a while.  I work full time in the medical IT field while living below my means and purchasing properties, while also writing apps on the side.  I've had the long term goal of being able to cut down on work, ideally being able to work remotely for periods of time (I am a dual citizen and my wife and I like travelling, and can generally fly free).

I live in a *very* low cost of living city.  My personal expenses are pretty low- I live in a duplex I own, and the other side pays for the mortgage.  But, I have a very safe/secure job at $60k/yr, and I hesitate to give that up, especially as I am married and my wife doesn't make much income and was interested in going back to school.  ($60k/yr in my city goes a long way.  I fly overseas twice a year and live pretty comfortably while still saving.)




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I recently noticed a business with a handmade for sale by owner sign.  I've had some interest in owning commercial property for a while, so I gave it a call.

It turns out, it's not the property for sale- it's the business, which is a mechanic shop.  The man I spoke to, the owner, is very elderly and is looking to retire.

During our brief phone call, he explained that the business brings in over $300k revenue per year.  His asking price was **$460k**.  He only works for a few hours a day, and as he's elderly, little of it is on the floor.

I did a little more research, and I found some past listings.  It seems he listed it with a commercial listing for $725k, and the listing (which was written by a commercial real estate broker) mentioned that the business brought in *net profit* $115-125k per year for the last 3-4 years.  I found another, newer listing for $475k.



So, on paper, that's a 24% cap rate.  $460 purchase price to make $115k a year?  Seems like a no-brainer in real estate.  Heck, I could finance it, hire someone to run the place full time, and still be seeing a pretty nice margin.

But...the previous listings make me wonder.  It gives the impression that the owner has so far been unsuccessful in finding a buyer.  That might mean there's something I'm not seeing here, through my green eyes, that other investors have decided to pass up.

And then, of course, there's the really ugly part: I know very, very little about repairing cars.  I'm not a mechanic; I'm not a car aficionado.  I drive a Prius that I got a great deal on because I like saving money.  I'd essentially be buying the business to keep the current employees and maintain operations at the current margin.  I have only one thing that's handy- both of my neighbors are good friends and are constantly working on their cars for fun.  One of those neighbors is my brother-in-law.  I'm sure I could get help from them, and I know their respective incomes are fairly low, so hiring one to manage it could be realistic.

I am going to meet with the owner tomorrow afternoon. 

If I may ask this subreddit:

* What kind of information should I be looking to collect?
* What red flags should I worry about?
* Is it a terrible idea to purchase a business in a field that I don't have much expertise on if it looks good on paper?
* Do you have any advice for me?



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**tl;dr version:**
Local auto mechanic business for sale for $460k.  Claims to net &gt;$115k/yr.  Seems like a no brainer on paper (24% ROI), but I don't know the first thing about this type of business.  Any advice for determining if this is a good move?
[{"id": "d9ruq54", "text": "Run, as fast as you can, from this.  \n\nI don't even know where to start here.  \n\nI can't answer exactly with out knowing a lot more but in my experience (particularly with old business owners) the financials are always bullshit.  They personally pay expenses for the business and don't collect a salary.  THeir wife pays all the bills and doesn't collect a salary.  Their grand son cleans the shop and helps out on easy stuff and they just give him some cash out of their pocket.  You need to adjust their fiscals or have a CPA do this.  Since you know nothing about auto shops, a cpa who actually has experience with them needs to do it.  Since you have no experience with auto shops, good luck finding that.  \n\n Cap is a measure of risk, a small auto business is risky as fuck, particularly with the owner leaving and a new owner who knows no one, and has no experience in this.  This is way way way more risky than a typical RE investment.  That is why it (potentially) pays more.  Do you know enough to know when employees start stealing parts?  Do you know enough to know how long different repairs should take?  Do you know enough to talk to customers with problems?  You are going to wind up with a business that you have 0 idea how to run, and not even enough experience to realize when shit is hitting the fan.  \n\nAs far as your friends that work on cars, working on cars is a far cry from running an auto shop. \n\nMan trust me on this.  This is a horrible idea on every level.  If you really really really don't trust me, hire a cpa who does business brokerage and can comp this and adjust it.  I can't tell you if its a good deal or not, but businesses commonly sell in that 3-4 multiplier range similar to this.  A lot of businesses have adjusted noi's like half or less of their advertised too.  And you are buying a job.  Don't kid yourself on that.  He may be able to spend a few hours a week watching things since he did this for 50 years or whatever and all his staff probably is loyal to him.  As soon as he is gone they don't know you, some may quit, others may steal from you like crazy, others that he keeps his thumb on will start being lazy and you won't even know enough to put your foot up their ass.", "replies": [], "depth": 1}, {"id": "da0ai7b", "text": "Get a mechanic partner.", "replies": [], "depth": 1}]