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As commercial transactions, deposit amounts and Down Payments on Hospitality/Investment Properties are different from those of residential properties:
- A. Be prepared to initiate an offer with a $10,000.- deposit.
- B. Due in 10 days is an additional deposit that when added to the $10,000.- will be equal to 10% of the offer price. This 2nd figure may need to be increased after negotiations between buyer & seller to reflect a true 10% deposit on the final, negotiated sales price. (Exception - if selling a property prior to closing is a contingency & most of your equity is in that property, then the 10% deposit may be negotiated, with the balance due at closing.)
Both of these checks should be made out to the Real Estate Company which has listed the property. The monies will be held in escrow, (a separate account exclusively for this transaction) and are refundable in full should the buyer need to withdraw from the contract on one of the allowable contingencies.
Since you may have to access these monies from your savings or retirement accounts which may require extended time to release, you will need to plan ahead accordingly to have these funds on hand when you make an offer on a property. Remember, this money is not being spent, but being invested in property you will soon own.
2. Due at time of closing is a 20%-30% down payment which most banks require on a commercial loan. If you need to sell your house or liquidate other real estate in order to complete this transaction, you may, at seller's option, include a thirty to sixty-day contingency in the sales contract in order to place your property on the market and find a buyer.
At the onset, you should contact a real estate agent, have a market analysis done to determine how much equity is in your house, and get an estimate of how long it will take to sell your house. If you know it may take 6 months to sell your home, you might want to list it before you have found your ideal inn. If it sells before you have found your ideal inn, you can move out & rent until you find your desired property, request a delayed closing of your property to coordinate with the inn purchase, or sell and rent back from the new owners of your property.
During this time contingency to sell your house, it is usually customary for the inn to remain on the market to other prospective buyers (Under Agreement with Contingencies). Should the seller receive another offer without a property to sell that matches or exceeds your offer, you may be given 72 hours to remove the contingency of the sale of your house (in which case you could apply for a home equity loan or a wrap around mortgage), or the contract will become null and void and all your deposit money will be returned.
3. Since entering into a Commercial Purchase & Sales involves complex legal matters, we would encourage Buyers to have their own Legal Counsel throughout the entire process to closing. It is to your advantage to select a local lawyer who knows the town rulings, has familiarity with local officials, and is a real estate attorney who has experience closing Hospitality/Investment Properties.
4. One of the primary contingencies of the purchase & sales is the financing. Once you have a counter-signed purchase & sales, you will need to make formal application for your loan within 5 days. Loan approval may take any where from 30-45 days, unless you elect to go SBA (Small Business Association) which may take up to 60 days. (Ask us for details about the pros & cons of each before applying for the loan.)
Before you select a bank, you need to be aware that only certain banks will have the specialized programs for hospitality loans, and some of these may have already loaned the allowable percentage from their portfolios. Check with your B&B Realtor for the specific facilities available in the area in which your inn is located and within the time frame of your closing. Time is of the essence once you have signed the legal contract ( P&S), so it makes no sense to waste time at a bank which has no interest in financing hospitality properties. By the time this type of bank communicates this to you, valuable time has elapsed, the seller often becomes skeptical of your ability to qualify for any financing at any institution, and may become reluctant to extend the time frame for the buyer to reapply at another institution. The seller may want to find a more qualified buyer with a more expedient time frame. If Buyers have a "Life-Long" Bank with whom they would like to work, we would also suggest applying to a Lending Institution whose Financial Portfolios are "Commercial Friendly."
5. The other major contingency to a purchase and sales is the home inspection which allows you approximately 14 days to procure an inspector, have him inspect the premises, and provide you with a written assessment. Most of the report will be informational in terms of the condition of the building & equipment in order to better understand what you are buying & perhaps anticipate the life expectancy of certain aspects of the property (i.e., roof, heating system etc.).
If there are no major problems (everything that is supposed to be working, is working, & there are no code violations [ex. wiring or plumbing]), then everything proceeds with the purchase & sales. Should any major problems be revealed (electrical not to code, structural discrepancies), you may ask the seller to address them. Seller has the option to hire another inspector or professional (electrician or contractor) to get a second opinion. Seller may then reduce the price of the purchase and sales by the amount it would cost to repair the major defects (or ask the buyer to split the cost with him), actually repair them himself prior to closing, use the second professional evaluation to prove that the item in question is satisfactory, or elect to do nothing about the faulty items, continuing to sell the inn "as is". Should buyer & seller not be able to resolve any major issues, then the buyer has the option of dissolving the contract and have the deposit monies returned.
One of the last responsibilities that Buyers have as a contingency is being able to operate the business as a Bed and Breakfast, Hospitality, or Specific Commercial Property for which they need to obtain the necessary licenses. We will go into more detail about these Local, State & Federal Requirements as they apply to your specific type of property. This part of the process is usually initiated after the buyer has obtained financial approval.