Buying a pizzeria with seller financing
So, you want to own a pizzeria, or maybe you want to open another shop, but you don’t quite have the capital. The most important thing to remember is this: as much as you want to buy a pizzeria, somebody wants to sell it even more. If you speak to wealthy individuals, they will tell you that a lot of the time they got wealthy off of other people’s money – better known as leverage.
Caliente owns seven pizzerias and five buildings, and we have done millions of dollars of acquisitions by seller financing. Not all the deals have worked out, and some sellers just want their money right away, and sometimes, sellers just want an out. I like to find locations that used to be landmarks or destination restaurants, one owner removed. I don’t want to buy from the owner who is selling to retire and move away to the warm weather. I am looking for an owner who has faced some hardship, whether that hardship is financial, personal or medical, or maybe they bought the restaurant for an investment with the idea that they would find someone else to run it.
Negotiating Seller Financing
The order of the negotiation is very important when you’re trying to negotiate seller financing. I usually do not negotiate the actual price. By agreeing to what the seller asked, they are happy and delighted, and somewhat taken by surprise that you were willing to pay the asking price. Most people have an asking price and then they have a price in mind that they’d accept for the sale. The reason I don’t negotiate the price is because I focus on negotiating terms. The terms include the interest rate, the money down and how long the payments will last.
Everyone knows what interest rates are in this climate right now. I have negotiated interest rates from 2.5% being the lowest and 6% being the highest. Within the last six months, I was able to negotiate an interest rate of 3.5% on my latest acquisition. I always try to put the least amount of money down so that I have more working capital for the remodel and the start of the business. I have put as high as $125,000 down and as low as $50,000 down at once, and I have done owner financing on deals as low as $125,000 and as high as $1.4 million. Most of my deals are for five years, but I have done a couple as long as 15 years – though of course those were the higher priced acquisitions.
A sample acquisition might look like this: $225,000 asking price over five years at 6% interest with $75,000 down. I always know the highest amount that I want to put down and I never start at that amount. I always start by negotiating lower, and then work my way to the higher amount. When someone balks at the interest rate, I remind them that I gave them the asking price. Most times they are pleased with the five-year arrangement.
If you’re lucky enough to not just buy the business, but also the building, that is the best deal. And in next month’s Building Blocks, we will talk about all the advantages and disadvantages of being your own landlord.