Buying an optometry practice. Buy building too?
Background: I'm an associate at a well established practice in small town Kentucky and owner wants to leave. We are negotiating everything and are kind of far apart in general. Practice has been evaluated at $475k and he wants $550k. The building is 6000sqft, w/ 3 units. Practice unit is 4000sqft. Nice location. He is asking $650k (swears he paid $800k to build it 12 years ago). Taxed at $540k. Other units pay below market price at $800/mo and $900/mo for 1100sqft each. I really don't think he's shady shady, but got himself into a hole and trying everything to dig out, including listening to a shady CPA's advice and trying to please a Type-A bitchy wife.

Situation: If I buy him out completely, I have two options. 1) buy 100% and have partial SBA closing costs at $30k or 20% owner financing (he really wants to avoid) or 2) rent for a while and buy out later.  If I rent, he has already state he "needs" $4500/mo (which is ~$13.5/sqft)

I'm taking a guess on worth and would like advice (more than "run away"). I would raise rent to ~$10/sqft for other units. I've been quoted two loan terms: 100% @ 5.85% w/ $31k closing or 80% @ 4.99% and $2500 closing (no rate yet on owner financing; I can't swing the other 20%).

What offer would be the FMV? What would you offer first?
[{"id": "dfyt6va", "text": "going to $10/SF is raising one guy $17/month (2%) and the other $117/month (14.6%). Is that feasible? What do the leases say? Typically a new owner has to stick to existing leases.  \n\nLet's assume you rent at $4500/month and the other 2 tenants keep their rents the same. Ballparking 20,000 tax, 5,000 insurance, 25,000 annual operating costs, you get net income of 24,400 and an implied cap of 3.8% at $650K. Unless you have more information on the operating costs of the property, he's way off the mark on the value of the real estate. \n\nSo all in, he's asking $550k+650k = $1.2M for the practice + real estate, even though the value is probably more like $1M max.    \n\nIf you don't do the deal, can you still work for this guy? On the other hand, you don't want to overpay. I would get a 100% financing SBA deal from a lender and tell him you aren't paying more than what the bank will give you. ", "replies": [{"id": "dfyulh1", "text": "I'd have to hold the leases and I'd notify them well in advance to expect a small increase. I want it to be palatable enough that they don't flinch too much.\n\nYou're right on expectation and price. I offered $445k and $550k, respectively. He seems to really want to sell but is also adamant on not needing to take a loan to sell the place. He's underwater. Hell, he's struggling to pay bills, by I have no clue why. We had $98k in deposits in March. The money ain't going to the biz...\n\nMy strategy is this: when I hired on, I told him that I was going to renegotiate salary based on gross production and that I'd be looking for buy-in / buy-out option by 5 years. I had foregone the raise last summer when buy-out talks had been brought up. If this deal doesn't go through, then I'll ask for a raise (even though he says payroll is eating him up). If he says no, then I hand in my 30 day notice. The staff (5 including office manager) have all said that if I don't buy, they'll be looking for new jobs immediately, effectively leaving him with possible 5 new hires at once. (Actually 4 new hires because I know he'll let go the OM, long story, but that'd be a mistake). I'll time my leaving with the day he leaves for his annual 2.5 week vacation, leaving absolutely no coverage and no revenue being generated.\n\nIf I do get an accepted offer, I'll look to finance 100% with an unfortunate $32k SBA closing cost. It'll be cost effective to do that if I pre-pay at $4500 / mo and pay it off in 17.5yrs.  ", "replies": [{"id": "dfyx4ub", "text": "&gt; I'll time my leaving with the day he leaves for his annual 2.5 week vacation, leaving absolutely no coverage and no revenue being generated.\n\nit sounds like you have him by the balls... good luck though, I hope he sees the light. A well run small business is one of the tickets to financial independence. Get a good CPA and max out those retirement accounts.", "replies": [{"id": "dfz6b8c", "text": "Have a great financial planner and hopefully what turns out to be a good CPA", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dfzbblg", "text": "Quick thoughts... tax value is irrelevant, they are often off. Need to look at the location and the net income (after expenses, how much are you netting from the tenants and how much would they contribute to your mortgage)... Consider your long term plans. You don't want to be stuck trying to rent the building when you retire. Are you going to bring on an associate or sell the practice?... An option could be to purchase it then when you're 10 years from retirement sign a 10 year lease and put the building up for sale to investors (to cash out and shift the risk to them)... Obvious benefits of ownership is the rent the practice pays builds equity and you get to take depreciation. Downside is vacancy of the other tenants, or even worse vacancy when you decide to ramp down if nobody else is in line to lease your space. Source:: have worked exclusively with helping doctors and hospitals with their RE for the last 11+ years... Good luck and feel free to PM!", "replies": [{"id": "dfzfhb2", "text": "Hey thanks. I'll PM you next week IF he decides to play ball. If not, I'll appreciate your input and hope I can utilize your advice when I get something else rolling.", "replies": [], "depth": 2}], "depth": 1}]