09-16-2018, 12:18 AM
Hi everyone,
First off, thanks for taking a glance at my post. I hope my question will stimulate discussion and help guide me towards an informed decision. I have secured a 5 year lease on a location that is suitable for a restaurant. I purchased the restaurant that was there for $80,000 and the monthly rent is $2,500/month for the first 3 years and increases to $2750/month the last 2 years. It is very competitive compared to what rents are in the area.
Another party is interested in the location and I've been asked to come up with an offer that's workable for all concerned. I would like to have a minority interest in the business as it's a successful business model and I want to remain active within the business. So I've come up with the following:
- Initial good faith payment of $2,500USD
- monthly payments of $1,100USD until the end of the rental agreement
- 4% of monthly net profit for the first 4 years
- 5% of monthly net the final year
- $10,000USD final payment
I will estimate restaurant's monthly net profit at $5,000USD not factoring inflation. Here are my projections:
$1,100 x 59 months = $64,900USD
$2,500USD good faith payment + $10,000USD final payment = $12,500USD
$200USD x 48 months = $9,600USD
$250USD x 12 months = $3,000USD
Total = $90,000USD
I will be paying a total of $90,000 in rent the first 3 years and another $66,000 the last 2 years. I know you're saying, why would I accept some $60,000 less than what I've put up so far? Simply put, chalk it unto my overpaying for the restaurant purchased. I could sell the restaurant for about $35,000 and take my loss or hold on, keep doing what I enjoy doing and participate actively and recoup a bit more of my investment.
I know there are other ways to look at this, which is why I've posted here. Any contributions would be appreciated.
First off, thanks for taking a glance at my post. I hope my question will stimulate discussion and help guide me towards an informed decision. I have secured a 5 year lease on a location that is suitable for a restaurant. I purchased the restaurant that was there for $80,000 and the monthly rent is $2,500/month for the first 3 years and increases to $2750/month the last 2 years. It is very competitive compared to what rents are in the area.
Another party is interested in the location and I've been asked to come up with an offer that's workable for all concerned. I would like to have a minority interest in the business as it's a successful business model and I want to remain active within the business. So I've come up with the following:
- Initial good faith payment of $2,500USD
- monthly payments of $1,100USD until the end of the rental agreement
- 4% of monthly net profit for the first 4 years
- 5% of monthly net the final year
- $10,000USD final payment
I will estimate restaurant's monthly net profit at $5,000USD not factoring inflation. Here are my projections:
$1,100 x 59 months = $64,900USD
$2,500USD good faith payment + $10,000USD final payment = $12,500USD
$200USD x 48 months = $9,600USD
$250USD x 12 months = $3,000USD
Total = $90,000USD
I will be paying a total of $90,000 in rent the first 3 years and another $66,000 the last 2 years. I know you're saying, why would I accept some $60,000 less than what I've put up so far? Simply put, chalk it unto my overpaying for the restaurant purchased. I could sell the restaurant for about $35,000 and take my loss or hold on, keep doing what I enjoy doing and participate actively and recoup a bit more of my investment.
I know there are other ways to look at this, which is why I've posted here. Any contributions would be appreciated.