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Help!!! (Investment question)
Old 06-23-2016, 10:49 AM   #1
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Help!!! (Investment question)

Hello Everyone,

My name is Brian I am closing in on 54 years of age. I would like your opinions on the sale of my business. Holding a note of $350k for 12 years @ 6.25% the person is currently employed by me and has been for 4 years. $310k cash and walk. I do not need the monies now. I have 400k cash and stocks and rental income of $5k a month plus additional dividend income from quality stocks @$500 a month. I have zero debt. Cell phone, car, health and homeowners insurance, property taxes and food. The monthly payment of the $350k will be saved which will add up to $498k at he end of 12 years. The business is a cash cow I made $212k last year and have faith that the buyer will be able to operate to my standards. My wife and I are simple people and can live comfortably on $4k a month. We are going to split time between the states and our condo in Brazil (wife is Brazilian). Thanks for your time and I look forward to hearing from you guys. If any of you have any advise on where I could invest the 300k if i go that route that would be great. I am not much of a risk taker.
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Old 06-23-2016, 10:56 AM   #2
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You have long term care insurance?
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Old 06-23-2016, 11:07 AM   #3
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I do not have long term health care. I am in excellent health, take no meds for BP or anything. Family history is good, grand parents on both sides lived well into their 80s with no significant health issues.
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Old 06-23-2016, 11:09 AM   #4
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Doesn't matter I'd get it. Assisted living can chew through assets in no time. That's the only hole in my financial plan that needs to be plugged. Both of my parents are in their late 80s and still at home but they may need assisted living at some point. People live an awfully long time now.
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Old 06-23-2016, 11:21 AM   #5
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What is your net rental income per year, can't tell if you are saying 60K gross or net, and that is a big difference.

So you are selling your business for 3x annual sales of 212K ? Sounds a bit cheap, and if that 212K was profit, then it seems like a giveaway price.

As for investment, why would you not buy more of what you have, or just VTI or SDY with about 50K to put into 2% CD's for emergency cash
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Old 06-23-2016, 11:39 AM   #6
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60k will be the net. The business is a restaurant and the market is flooded here in St. Augustine, literally 1/2 of the restaurants are for sale here, can't find good consistent help.. It has been listed for 1 year and only 1 bite. I am done.... Tomorrow is not guaranteed! I had it listed originally for 400k since then I have put 60k in my pocket. So if I get 350k I'm happy.

I am not adding to my stocks right now. I think the market is over valued.
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Old 06-23-2016, 02:16 PM   #7
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I would be inclined to take the lump sum and walk. Why? Restaurants run in part on reputation, and if the new owner ruins the business, you may never receive anything close to the amount you expect. Do you want to bring in the lawyers and sue the new owner if they default on the note?

There are two other questions:
(1) Are you getting a fair price for your business?
(2) Are you ready to retire?
I won't comment on those.

Good luck!
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Old 06-23-2016, 05:06 PM   #8
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I would be inclined to take the lump sum and walk. Why? Restaurants run in part on reputation, and if the new owner ruins the business, you may never receive anything close to the amount you expect. Do you want to bring in the lawyers and sue the new owner if they default on the note?

....
You reminded me. Our family used to go to an Italian restuarant that was fantastic. Frank the owner ran it for about 26 yrs.
Then he sold it/gave it to his son, his son changed a number of things in the menu and decoration to make it what he wanted, and in about 3 yrs it was bankrupt and closed.
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Old 06-23-2016, 05:26 PM   #9
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I agree with others, $310k in hand is more valuable than $350k in a note given the risk involved in such a business. I guess if you have a lot of confidence in the buyer you might consider assuming some debt but I would limit it to 20% at most.

If you take the note you would receive $3,461 monthly for 12 years.... that equates to receiving 8.61% on $310k.... if you put the $310k in an account and earned 8.61% a year and withdrew $3,461/month you would have zero after 12 years. To me, a 8.61% rate of return isn't sufficient considering the risk associated with an established restaurant under new management... I doubt that a bank would offer such financing... I would take the $310k in cash and invest it all else being equal.

However, have you assessed what will the tax implications of the sale will be? To me the only reason for providing some financing would be to spread out the tax bite via an installment sale.
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Old 06-23-2016, 11:09 PM   #10
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I sold the business a couple of years ago. It was not to an employee but a business professional who wanted to get into our industry. They paid some cash upfront and I held a note for a large amount as well. Those payments were to start recently and the payment did not come. Im spending a fortune with the attorney trying to get it sorted out.

You do not have a lot of recourse if they claim cash flow issues. And you'd be surprised how quickly businesses fail with new management or owners.

If you were saying that you have the option of taking $310,000 now or a note for $350,000 dollars, I would take the $310,000 for sure.

And I'm assuming you have an account to can tell you how to structure the sale as far as asset purchase or stock-purchase and how to allocate for goodwill, etc. These things are important because it will affect how much tax you pay on the purchase price.


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Old 06-24-2016, 04:27 PM   #11
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Thank you for the replies. Due my wanting to get the hell out, yes it is a fair price.
Ready to retire IDK. Can I, yes. My wife and myself are very simple people, we can always start another restaurant if needed.
What's the old saying? A bird in the hand. I have always been a lucky person... Things tend to fall my way. The initial tax hit will hurt
, that was one of my reasons for holding the $350k note.
I am a little gun shy about the markets right now and finding a safe have for the cash and other monies I have saved is a concern.

Thanks again and I will keep u posted.

Brian
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Old 06-24-2016, 06:26 PM   #12
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Lucky for you, the sale on stocks is just starting, just jump in some time, rather than waiting for it to all recover and be safe (and expensive)
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Old 06-29-2016, 03:21 PM   #13
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Well i just signed the papers.. Restaurant is sold.. Cash buyer is now giving me $175k down and I'm holding $175k for 10 years at 6.5. They also signed a 10 year lease with a 3% increase every other year. I am stoked! So now what do I do with 175k plus other $$ I have squirreled away. Give me a home run here.:-) I will be saving another $3500 a month any ideas?
Brian
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Old 06-29-2016, 03:26 PM   #14
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You're in the wrong place for home runs. This crowd prefers a steady barrage of singles. Wellesley or Wellington are favorites.
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Old 06-29-2016, 03:28 PM   #15
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You're in the wrong place for home runs. This crowd prefers a steady barrage of singles. Wellesley or Wellington are favorites.
I prefer also.. Just throwing it out there.
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Old 06-29-2016, 03:33 PM   #16
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I prefer also.. Just throwing it out there.
As a pitcher you know the value of having a low ERA. The two funds pb4 mentioned have something similar - low ERs.
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Old 06-29-2016, 03:44 PM   #17
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Congrats on the sale!

I would stash say 50K if you are low on dough and dollar cost average the rest into the markets as your AA specifies.

Go have a nice supper and celebrate -
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Old 06-30-2016, 12:32 AM   #18
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Congrats on the sale!

I would stash say 50K if you are low on dough and dollar cost average the rest into the markets as your AA specifies.

Go have a nice supper and celebrate -

Hasn't dollar cost averaging shown to not be that effective compared to just lump summing in to a desired asset allocation ? especially if you hold the investment beyond a year ?

I just wonder why people keep suggesting it. Am I missing some reason why it makes sense to do in certain cases ?


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Old 06-30-2016, 12:41 PM   #19
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Hasn't dollar cost averaging shown to not be that effective compared to just lump summing in to a desired asset allocation ? especially if you hold the investment beyond a year ?

I just wonder why people keep suggesting it. Am I missing some reason why it makes sense to do in certain cases ?


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From what I read, you are correct that lump sum is better...

But, there is also psychology working here and nobody wants to be those few people who actually lose by lump sum.... better to be wrong with a lot of small purchases the wrong with one big one.... oh, and the person would not know he/she was wrong on the dollar cost averaging as they will not go back and look.... but the lump sum person can easily see if it was good or bad...
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Old 06-30-2016, 01:22 PM   #20
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I dunno, I've always heard that dollar cost averaging was the best way to invest. People also think the market is high right now, so if you do it also makes sense.

Maybe they meant that the dollar cost average was only good over a long time frame, say 10 to 20 years of 401 type contributions?

See, I dunno. Another reason I hired an advisor.
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