| The majority of daycare center owners, lease their | | | | surprised on how eager they are about talking to you |
| facilities rather than own the underlying commercial real | | | | about selling. Keep in mind, most landlords are |
| estate. Why? And, what are some ways that existing | | | | constantly looking at new deals that requirement cash. |
| daycare centers can buy their existing building and | | | | So they may be very open minded to ripping up your |
| enjoy the time tested benefits of owning? That's what | | | | lease and selling you the property. |
| we discuss in this brief article. | | | | As far as the down stroke on the purchase there is a |
| First of all, many aspiring daycare center owners start | | | | little known guideline which can help reduce your out of |
| off with the plan/desire to own their building. But often | | | | pocket down payment to 5% or sometime less - It's a |
| come to the conclusion that owning is just out of their | | | | form of rent concession. And NO you don't already |
| reach financially, unfortunately. For example, say the | | | | need it in place. From a conceptual standpoint it can be |
| daycare owner wanted to build a 8,000 square foot | | | | thought of as a lease to own type structure, where a |
| facility. And say the total project cost including land, | | | | portion of the monthly payment goes against the |
| construction, franchise fees, equipment and working | | | | purchase price. |
| capital totaled $1,500,000. If the daycare owner | | | | One of the keys here is that the value on the appraisal |
| decided to own, they would be expected to shell out | | | | has to come in higher than the purchase price. For |
| between 10% - 20% cash (depending on many | | | | example, say you negotiate a $1,000,000 purchase |
| factors such as if the daycare was a start up, risk | | | | price with the current owner. You have occupied the |
| tolerance of the bank, etc). At 15% the borrower | | | | property for 2 years and paid $3,500 per month in rent |
| would need to put $225,000 into the project. | | | | or $42,000 per year. You could potentially attribute the |
| If the daycare owner decide to lease the facility, on | | | | $84,000 of this rent to go against the purchase price |
| the same 8,000 square foot example above, they | | | | to cover your down payment. If the property |
| typically would only need to come out of pocket 10% | | | | appraised for $1,100,000 you could attribute the |
| -20% of the equipment, franchise costs, working capital | | | | $84,000 of the rent you already paid. Your down |
| and tenant improvement costs (space build out costs). | | | | stroke would be 15% of the $1,100,000 = $165,000 less |
| These costs would normally be less than half the total | | | | the $84,000 of rent concession or total out of pocket |
| project cost, or for this example approximately | | | | of only $81,000. Versus a straight 15% of the |
| $600,000. The daycare owner would only need to | | | | $1,000,000 purchase price or $150,000 out of pocket. |
| come out of pocket $90,000 at 15% rather than | | | | If you lease your daycare center give this some |
| $225,000 if they owned. | | | | serious consideration as the benefits of owning are |
| However, one of the easiest deals to get done, even | | | | substantial. Building long term wealth via depreciation, |
| in this credit crisis, is to buy the facility you are currently | | | | property appreciation and of course the chipping away |
| renting. Obviously you will need to come to an | | | | of the mortgage with every payment you make, to |
| agreement with your landlord, but you might be | | | | name a few. |