We are looking to purchase a property with an old run down house (which we want to destroy and build another on the same site), a restaurant (breakfast and luch with occ. dinner), a X-Mass tree farm and blueberry patch.
The restaurant is our main goal with the others as add-ons. It is open limited hours and closed in the summer yet still has pretty good P/L statements (about $10,000 per month gross reported). We plan to expand the hours and the season.
The question we have is what type of loan would be best in this instance? We are looking for best rate and terms with a longer payback schedule (we can pay off early if the funds are there etc.).

Thanks,

I am not certain about a couple of things. I assume that there is a restaurant in the property already since you mention revenues of $10,000 a month. You also failed to mention if the house is also used as a residence.

If the house is used as a residence, I would try to keep this as a residential loan. Keeping the loan in the residential side should give you the better terms as far as amortization, rate and maturity.

On the other hand, if you have to rely on the cash flow of the business as your source of repayment, then it will turn into a commercial loan. I am not familiar with farm loans being a good twenty miles from any farms and can’t really help you with feedback regarding those, but as per your comments it seems as if the farm is a side activity and does not bring enough to repay.

Too complicated a situation to tell from afar. You need to go discuss it with a local banker. On top of the loan you are thinking of tearing the improvements down and rebuilding so that might even make some lenders wary.

Good luck

Their desire to demolish the house certainly would affect the ability to make a residential loan, wouldn't it? I suppose they could push back the house project for a while to get as much residential financing as possible.


Is that last month, the average for last year, or something else? I personally wouldn't care about the gross revenue, except if it's trending up or down - or if you think you can significantly improve the margins. Check out what the actual cash flow is, and make sure it will pay for itself. You don't want to pay for a money trap.

Personally, this really sounds like a commercial loan, and a rather complicated one at that. As LU said, talk to a local banker and see what you can get. All the best to you.

As far as the classification of the property it would be determined upon appraisal based on what we call the highest and best use:

Highest and best use may be defined as "the reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value."

which in this case will most likely be a restaurant. Most national commercial lenders will only issue you a free standing restaurant classification with an ~60% LTV. If that dosent work for you, either try your local bank and or slightly imporve the old home on property and rent it out. I would need to more but this MAY classify the property mixed use aka better LTV and rate.