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Old 11-03-2015, 07:56 PM   #41
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For just about all the reasons above, I concur. RUN AWAY.

Here is another one. Friends in the neighborhood decided to open a Pizza place. Small town, with no big chain pizza stores. In fact no pizza at all. They were going to open it, hire a manager, and..... well you know, enjoy retirement.

In the first year they have burned through several managers, and put in countless hours. Is it making money. I think so, but not near ROE they would be getting on corporate bonds! While they profess to be having a great time, I think they will sell out within another year.

So if you are doing it because you always wanted to have an ice cream store, go for it, otherwise RUN AWAY!
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Old 11-03-2015, 09:07 PM   #42
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So if you are doing it because you always wanted to have an ice cream store, go for it, otherwise RUN AWAY!
+1

I'd rather work in a pizza place as a pizza maker or a scooper in an ice cream parlor than own the place. Come in, make/serve food, go home, no worries.

I met with a 30 year old guy recently that was setting out on a very very long sabbatical or perhaps complete early retirement if the numbers end up working out. His plans were to work in some low wage jobs occasionally on a part time basis just for the fun of working in different places (coffee shop, deli, pizza place, etc). Sounds like a much better plan than dropping hundreds of thousands on a place just to make a minimum wage salary and be stuck with the responsibilities of ownership.
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Old 11-04-2015, 07:30 AM   #43
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........ Sounds like a much better plan than dropping hundreds of thousands on a place just to make a minimum wage salary and be stuck with the responsibilities of ownership.
Right, plus all the free ice cream and pizza you can eat.
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Old 11-04-2015, 01:15 PM   #44
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Update. Just got this reply from the agent.

###
The expenses could be padded for income tax purposes... The listing agent says the 165K business (including brand name which is well established) net is 9%. The 100K for the building is reasonable as is the 60K for the equipment.


I ran this by my broker who has investment properties all over town. He thinks it's a decent investment for passive income for 6 months.Wages and product costs can be controlled. The location is excellent as North ******* is really hot now. ***** neighborhood is booming and the ice cream shop is right across from the new ***** Estates residential development. The value of the building and land will only go up.
###

Thoughts guys?
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Old 11-04-2015, 01:22 PM   #45
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Thoughts guys?
At best it can make you several thousand in property appreciation and a few thousand in annual profit. At worst it can absorb all your time and energy six months out of the year, hurt your health and damage your financial well-being.

You seem really eager to go for it, so why not. Me, I'd rather sell a kidney.
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Old 11-04-2015, 01:25 PM   #46
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At best it can make you several thousand in property appreciation and a few thousand in annual profit. At worst it can absorb all your time and energy six months out of the year, hurt your health and damage your financial well-being.

You seem really eager to go for it, so why not. Me, I'd rather sell a kidney.
Texas Hill Country? Where abouts? I'm near Dripping Springs.

I'm not eager to go for it, just asking opinions of you all.
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Old 11-04-2015, 01:53 PM   #47
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Update. Just got this reply from the agent.
The agent, you mean the guy that makes a commission when he closes a sale?

Quote:
###
The expenses could be padded for income tax purposes... The listing agent says the 165K business (including brand name which is well established) net is 9%. The 100K for the building is reasonable as is the 60K for the equipment.
That seems like nonsense. 9% on the 165k is meaningless since you have to include the equipment and the building or rent on a building (can't operate without a space and the equipment). Add all that in and you're back to a 4% return. My guess is the deprecation of the building and equipment offsets any real estate appreciation.
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Old 11-04-2015, 02:28 PM   #48
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This thread reminds me of an old "I Love Lucy" show episode, "The Diner" where the Ricardos and the Mertzes buy a diner from an old gentleman thinking that with Ricky's connections and Fred's know how they will make lots of money. They don't of course, and when the old guy who sold them the diner comes back in, they gladly sell it back to him at a big loss. Then the old guy immediately puts back up the "Diner For Sale" sign. Makes a decent living selling and reselling the diner Nobody makes any money running it.
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Old 11-04-2015, 03:27 PM   #49
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Update. Just got this reply from the agent.

....The expenses could be padded for income tax purposes... .....
So if the seller cheats on their taxes, what else are they not telling you about? Or perhaps they don't and the profits are just poor (the agent did say "could be"). Neither are good.

Sounds like at time sucker to me but if you have the time and interest explore it further. OTOH, you can put the same investment in a balanced portfolio and probably come out the same or better with a lot less hassle.
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Old 11-04-2015, 03:29 PM   #50
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Why is the seller passing this incredible offer on to a new owner when it apparently is on the cusp of becoming a gold mine?
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Old 11-04-2015, 03:52 PM   #51
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Originally Posted by dsp0725 View Post
Update. Just got this reply from the agent.

###
The expenses could be padded for income tax purposes... The listing agent says the 165K business (including brand name which is well established) net is 9%. The 100K for the building is reasonable as is the 60K for the equipment.


I ran this by my broker who has investment properties all over town. He thinks it's a decent investment for passive income for 6 months.Wages and product costs can be controlled. The location is excellent as North ******* is really hot now. ***** neighborhood is booming and the ice cream shop is right across from the new ***** Estates residential development. The value of the building and land will only go up.
###

Thoughts guys?
You're not tying up $165K to make whatever it is that gives you a 9% return. You're tying up $325K, which brings the return way down.

If commercial real estate is so valuable there, invest in that instead. Most likely the building on this site would come down for someone to use it for another purpose, so really it's only the land value.

If you really want to separate out the real estate and call that it's own investment, the $60K in equipment is absolutely a tied up cost, bringing the return part way down. If the business fails or you decide to get out, you may get pennies on the dollar for any of it. There is no possible way that is going to increase in value so you can't call that an investment.

If it's what you really want to do and you think you can run it better to make more money, go for it. Some of those places do well. There's a place in Raleigh/Cary we used to love to go to, and they were packed every summer evening. Multiple locations. Just looked, they are up to 9 now. Our company also used them for some on-site events, so there are day time commercial possibilities too.
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Old 11-04-2015, 04:27 PM   #52
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I would certainly want to see past tax returns and ask where the expenses were padded and where they got the receipts for those padded expenses.

$60 K for used ice cream making equipment? While I'm not an authority on used equipment costs, that cost seems unrealistic.
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Old 11-04-2015, 07:42 PM   #53
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I would certainly want to see past tax returns and ask where the expenses were padded and where they got the receipts for those padded expenses.
IRS has a bounty program for reporting tax cheats. If you get documentation of the expense padding, you can make a lot more money turning them in than you can running a marginal business.
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Old 11-04-2015, 08:43 PM   #54
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Back to my pizza friends. They thought they had a manager when they started the business. Turns out the manager wanted to sit in the office and manage. No work on the pizzas, sales, or anything. So they got rid of the manager. It took three months for them to install cameras. They then found that their 'New' manager, and all the other help were stealing them blind. Pizzas to friends, cokes for the help, and supplies walking out the door. Needless to say, large turnover in employees. Now, even with cameras, one of the two are at the shop while it is open.

I know another neighbor that had a bar. Problem, it was 500 miles away. That's even worse than an ice cream parlor and pizza for goods leaving out the front and back door.

So, if you decide to go through with it, double the amount of time you think, or are being told you will have to put in, and I think that may be conservative.

Edit to add: As far as paying for the business, and good will. Unless one can demonstrate a loyal customer base, that is guaranteed to transfer with the sale, I would not pay for it. Let's say this place closes, or a new one opens a block away. Will customer still come to your shop? When they find out their old friends no longer own it, will they still come? Or, will they come because of location, product, and price. If the last is true, then, IMHO, their business value is zelch.
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Old 11-04-2015, 11:26 PM   #55
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I will just say that if this price is SO GOOD, then it should have sold by now...

How long has it been on the market



Also, if you REALLY want it... then offer $200K and see what they come back with.... you might be the only one bidding.... do not bid against yourself... do not take them at their word that the business is worth what they say... and even if it is, discount it anyhow....
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Old 11-05-2015, 11:05 AM   #56
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With the uncertainty in the numbers from the owners, and you are really really interested, suggest you run your own pro-forma using industry averages for expenses. It has been a very long time since I used, but there use to be publications that showed expenses by category by sic numbers. Sales numbers validated from the federal returns should be good but I would validate by looking at purchases levels and see if volumes bought makes sense for sales.
Definitely separate the value of the business from the real estate decision so you understand which element is driving what returns.
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Opinions Needed: Ice Cream Business For Sale
Old 11-05-2015, 11:38 PM   #57
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Opinions Needed: Ice Cream Business For Sale

Run away from this deal, the numbers are very poor IMHO.
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