Real estate contract question?

Discussion in 'Homesteading Questions' started by r.h. in okla., Dec 6, 2004.

  1. A few months ago my wife and I placed a down payment on a old general store building. We have kept the payments up and remodled the store into a bakery store. The person who we are buying the store from was real picky on who and what they were going to use the old building for. She was glad to see us put the store to use with a bakery/produce business. She agreed to sell to us and we make payments to her. She had a lawyer draw up a contract that we are purchasing and will make monthly payments to her and that we are using the building for the purpose of a bakery/produce business. I don't have the contract with me right now in order to type exactly how it is stated. Now I'm wondering if the bakery/produce business just doesn't make money for us if we would lose the building if we tried to put any other kind of business in it. As of right now our bakery business is very busy, we have lots of customers. We can't keep it stocked fast enough, but for all the work we put in it and no more than we are putting in our pockets. We wonder if it is even worth it. If we get any busier we will have to hire extra help which will cut into the profit even more. So I'm wondering, what if I tried a different business instead of the bakery? Will this new business void our contract? Even if I'm still making payments? Will she be able to take the building away from us and we lose our down payment and all the monthly payments that we have already paid?

    I may have to do something cause my wife and I are working our b_!! off and not really making enough money to make it worth it.
     
  2. melinda

    melinda Well-Known Member

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    this may not be what you want to hear, but you need a local real estate lawyer. We were pleased to find one when we sold our house (without a realtor) that was very good and very reasonably priced, just by calling around and asking some questions. His main advice to us: don't sign anything until he read it first. He emphasized that over and over. Real estate laws vary from state to state, so your best bet is a local professional.
     

  3. rambler

    rambler Well-Known Member Supporter

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    Such an agreement would make sense on a rental, but land use has no business being in a land sale.

    We have no idea without exact wording, and even then we have no idea unless we know your state laws, and even then I at least am just a simple dirt farmer so at best I would just be speculating......

    It is common for elderly people to want to continue to control & direct what happens to 'their' stuff. As a farmer, I'm going to be the same why when the time comes to hold auction & sell it all....

    In a contract for deed, the seller has the right to protect the property as they still own it. You don't. So I can see some comments about not making extensive changes. So, you do need to maintain the buildings & property much as it is. However, the actual business is your business, or should be.

    But, you need some professional advise on this one. Probably going to cost you a little bit, but best to find out.

    --->Paul
     
  4. Donovan K

    Donovan K Well-Known Member

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    I understand your question but I would like to have you think about this in a different way..

    First, you are really, really fortunate to have started a business that is amazingly popular in a small town and has you selling out of product day after day. So in my mind, instead of turning your back on that kind of success for another type of business that may or may not be as popular with customers, why not just adjust the way you are doing business now.

    You can solve the problem of not making enough money and not have to worry about risking losing your building if you review each product you are making now, figure you out to the penny how much each item costs you and exactly how much money you are making on each item you offer.

    One of the reasons you may be so incredibly popular is that your items are way underpriced and people are snapping up the bargain prices. Put in a ten to fifteen percent price increase across the board and see what impact that has on sales. If you are still selling out, you just increased your income by fifteen percent. Does that make it more worth your while?

    If the price increase causes a drop off in sales for more than two months, now you know you are too high and need to cut back. Give the increase a chance, let people get used to it, if they even notice, because some won't notice or care. If the increase does not affect sales, then you know in three more months, you can increase prices again, at say ten percent. Now, you are grossing twenty five percent more than you were and likely havent hurt sales.
    Again, if it does, edge back down.

    If you see the price increases are hurting the sales of certain items, drop them.
    They arent worth your trouble, especially if they are labor intensive.

    Keep in mind always you are a business not a charity or church, you deserve to be paid for your time, your work, your overhead and the risk you are taking with your money. Profits are not evil. Profits are the reason you are in business. If you are in it for any other reason, start a ministry instead.

    Lots of new business are not nearly as lucky as you have been. You have the start of what could be a tremendously successful lifetime business. Now, you just need to refine what you are doing. Take a hard critical look at every product you offer. Make sure each item is something you are proud to have your name on and is MAKING YOU MONEY.

    If, on the other hand, you have learned that you and your spouse are not cut out to be bakers, now is the time to get out before you get too far in. Get outside help to review your contract and see how much flexibility you have. If you find you are stuck with what you have and the owner won't budge, consider selling the business instead of walking away. Check to see if there is a payoff clause in your deal and you can sell your business lock stock and barrel and walk away with money in your pocket to seed a new business.

    Do your homework, work the numbers and good luck.

    JMHO

    Donovan
     
  5. fordy

    fordy Well-Known Member

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    ...............rh , In a way , what you are dealing with here is a Prima Facia Cost Accounting problem . Your making and selling a variety of baked products and I don't think that you are sure which one(s) are making a profit and which aren't . From my point of view , you have (2) simultaneous decisions to consider that are interdependent . (1) you have to figure out a Profitable product MIX...i.e. which grouping of baked goods is going to make a profit in return for your labor invested , and maybe consider adding other hiProfit product lines from outside sources,,,,,and (2) these decisions are dependent upon the Allocation of Available floor space that is available to you . If , you have UN-used floor space available you might get creative in the products you serve . Maybe you could switch from serving donuts and cinammon rolls in the morning over to cooking burgers and chicken fried steak at lunch . You're going to have to do a Bit of Experimentation here to arrive at the Formula for Success that meets your profitability expectations , Satisfies the clientel you serve and allows you to have a life outside of the business . ...fordy.. :)
     
  6. mikell

    mikell Well-Known Member

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    I don't think they can enforce what business you have as long as it doesn't violate local ordnances.


    mikell
     
  7. Terri

    Terri Singletree & Weight Loss & Permaculture Moderator Staff Member Supporter

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    Raise your prices and do it NOW! AFTER the holidays your business will drop. Buyer resistance will set in. Right now there is little buyer resistance, and by the time the holidays are over they will be used to the change in prices.

    When I was selling at the farmers market, I added a "kitchen cost" to every item before I figured the price. The kitchen cost was to cover the little things like a pinch of salt that I was not about to figure out the cost of. But, when you bake in quantity, those things add up. I figured a kitchen cost of 25 cents per large item (like a loaf of bread).

    And, remember that while a batch of food that comes off properly may have a profit, that profit ALSO has to cover the occasional ruined batch, or dropped bowl, or clogged pipe that meant that you couldn't get as many batches done, or the raised heating bill because of a really cold snap.

    The profit you make on a batch of goods MUST do its' part to cover these things, or you will be nibbled to death by ducks.

    The townspeople are welcoming you by bringing you their business. Value this, and value them. But, if you are not successfull, you cannot give them service for long. And, they WANT your store there. They are HAPPY you are there!

    Ideally, you are providing a service. But, honestly, you CANNOT provide them this service for long if you make no money. If you DO make some money, then EVERYBODY wins. They get a bakery and really fresh, fragrant food for their tables, and you and your wife get a living wage. Everybody wins.

    If your business fails, NOBODY wins!

    Raise your prices. Then, after the holidays, start thinking up new recipes and make the starting prices high enough to make you a profit. Consider if you want to branch out as well. Remember that while your customers like their favorites, they ALSO like variety. Since you cannot carry a huge assortment, consider an "item of the month". Heck, they might even some in just to see the new item.
     
  8. rambler

    rambler Well-Known Member Supporter

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    I was thinking along the lines of everyone else, why oh why would you want to change gears if you have a busy business that sells out of product? You need to adjust your prices, as others said, not start over. You've got the business....

    --->Paul
     
  9. jack_c-ville

    jack_c-ville Well-Known Member

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    You really, really need a lawyer immediately. Correction: you needed a lawyer 6 months or a year ago before you gave this woman a dime. Get an attorney who knows contract and real estate law and have him look it over. It will cost you a few hundred dollars. So what? You stand to lose tens of thousands if you don't understand what you are getting/ have gotten yourself into.

    This contract would have been dangerous enough as it is, but the sale is also owner-financed!? This woman has you by the short and curlies. You don't really own that building. There's no way you could even sell it to get out of the deal so long as a provision like that would have to carry over. No bank would finance property with a covenant like that. You can't sell it, you can't refinance, you can't run whatever legal business you want out of it; you don't control this asset in any way. Are there any elements of ownership left to you? Oh that's right: taxes, maintenance and insurance. You pay all of the expenses, take all of the risk and this other woman is the one who really has the control over the building and your economic future.

    I would be very hard-pressed to think of a worse situation to be in as regards a real estate transaction, unless maybe the building had termites and the roof was about to cave in.

    If there is any way to run screaming from this contract, do it immediately.

    To all reading this: hire a lawyer before you close on any real estate. Especially if there is anything even slightly out of the ordinary in the deal. Yes, we all love to hate lawyers but remember that we hate them because of when other people have hired them. When the guy with the legal kung fu is in your corner it's a whole different situation.

    -Jack




     
  10. fin29

    fin29 Well-Known Member

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    Eesh. Scary stuff. I second the lawyer recommendation, after you go to the bank and get approved business loan to cover the mortgage on the building.

    Did you buy this building with your personal finances or with business funds (loan or capital contribution to a corporation)? Do you have an LLC or other corporate structure set up to keep your personal and business finances separate? Gosh, please tell me you have a corporation set up and your own money isn't on the line.

    As far as your pricing goes, sure, you can raise it, but it would have been better to start high and then drop. I know it's all water under the bridge now for you, but I suspect that this thread will become very informative for lots of people. January and February will be tough months, as they are for all food service businesses, so it will be a good time to evaluate and eliminate your loss leaders from your inventory and streamline production. In this business, these two months are the months that we sit down with lots of coffee (or beer if it's really bad) and crunch your numbers.

    Good luck.
     
  11. Well we are not super busy and we are making a small profit. Before we opened we did do some homework and figured out how much we would be selling stuff. We priced according to other area business if we offered the same item. To raise prices would drive our customers to the other business with similar items who would then be offering it for less. But even if our business increased two-fold, or more, we would have to hire extra help which would eat up the profit plus have to buy more frigeration and other equipment. Either way we go it does not seem to be a win/win situation.

    However, if I could go back to my previous small business in the same building then I believe I could make a bigger profit with a lot less hassle and maybe less overhead. My previous business was deer processing. With a few changes I would start out with just making jerky and different sausages. Plus for the off season have a outdoorsman merchandise (hunting/fishing/camping equipment) and indoor archery range.

    Why did I get out of the deer processing business you ask? Cause I lost the lease to the building I was using and had no where to go.

    I think I would have a edge over other outdoor shops cause I would have a indoor archery range and a jerky/sausage service, plus I could offer coarses such as beginning archery, hide tanning, bow making, and maybe form a traditional archery club.
     
  12. fordy

    fordy Well-Known Member

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    ....................I , Hope you Succeed , No Matter what you End Up doing , fordy :)
     
  13. edjewcollins

    edjewcollins Well-Known Member

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    Dude,
    I just spent $150 on processing of Jerky and sausage from venison, it is an art and I'm not an artist. It may surprise you to learn that not everyone is coming to you because of price, maybe your just good.
    Why don't you sell both baked goods and jerky! God knows I'd be in every day if I wasn't in MI.

    Ed
     
  14. Terri

    Terri Singletree & Weight Loss & Permaculture Moderator Staff Member Supporter

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    No. They WON'T leave. Not if you are selling out of baked goods right now, and make it a MODEST increase. People who like your store will not go to your competitors if you raise prices on your hottest sellers by a measley 25 cents. Remember, while for you the quarters add up to a few dollars at the end of the day, for your customers it is just 25 cents.

    Now, if you raised it a LOT they might feel taken advantage of and leave, but if they ask you could just say that that was what you needed to keep the business running.

    And, as you say, more volume will come with more expenses. More production and hired employees may not be for you.


     
  15. boxwoods

    boxwoods Well-Known Member

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    First-- You should read the contract. Maybe a couple of times and see if it spells out, What you can use the store for.

    Second - Is there a mortgage filed with the county?

    Did you buy the property, with owner financing?
    Was the deed transfered to you?
    Do you pay the taxes and fire insurance?

    You should get a lawyer and try to get the transfer done and recorded. IMO
     
  16. Update: Well it is final, we are closing the bakery! Just too much overhead for the amount of profit we are making. Good news is;we have talked to the lady we are buying the store from and she is all for the processing/outdoor store. She is a real kind lady. She use to be a member of the same church we go to and she believes in us trying to do better for ourselves. So she is going to have the legal papers rewritten with our new business in place.

    Our new business is going to be a combo of a processing service, merchandise supply, and indoor archery range. :D Sounds fun don't it! To as far as I know of we don't have a indoor archery range within 60 mile radius from us. So it should draw in a few shooters. I believe I will be a happier man! :D
     
  17. jejabean

    jejabean Well-Known Member

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    I have never heard of anyone throwing in the towel while the business was booming. I wish I had the bakery! Isn't deer processing seasonal as opposed to the bakery where you are open all year?
     
  18. reluctantpatriot

    reluctantpatriot I am good without god.

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    Sometimes it is better to switch gears while the shifting is good rather than when you are lugging down the engine. If someone is miserable and fighting to keep something going no matter how good it is operating, it is time for a change.

    My mother switched her restaurant over to a full craft shop after five years because of increased competition, rising food and supply prices, lack of dependable help and the fact that with just she and I doing the work, we were burning out. On top of that was the high utility overhead, the pain of the state and federal taxes for employees and the like and the pain of dealing with an overbearing out to get you health inspector.

    While the craft business is not going well, the restaurant business was costing more for what business it did bring in. Prices had to increase due to costs, but people got their nose out of joint because we weren't as cheap as the fast food franchise chain restaurants in the towns near us. You can't please people all of the time.

    The building is up for sale, but if it doesn't before spring, I will be putting my gunsmithing equipment there so that it will be open and occupied in the meantime. Sometimes you have to try new things to make a go of it. If you don't enjoy what you do, it makes it a great deal harder to make your living.
     
  19. Aaron hit the nail right on the head. When we were remodeling the place just using power tools and lights our electricity ran about $35. a month. When we turned on the cooler, freezer, water heater, ice maker, fountain machine, deli display, ice cream machine, and a/c unit so everyone could be comfortable our electricity jumped up to over $400 per month. Since we live in a small country town delivery prices are outrages so we pay much more than a outfit in a bigger town only 25 miles away. So by the time we paid for the utilities, restocking, and employee wages, there wasn't very much left to put in our pocket. Certainly wasn't worth it at all.

    So the business we are going to switch too is something we have previously done before and know that it is much more profitable. Our business will be 1 part merchandize retail store selling hunting, fishing, and camping gear. 1 part processing service, making venison sausage and jerky for people as well as steaks and ground meat. 1 part indoor archery range for anyone who wants to practice or check out a new bow. Also we are going to arrange for hide tanning classes, beginning archery classes, bow making classes, fish spear/gig making classes, or anykind of outdoor classes anyone wants to put on. All though seasonal our biggest money maker will be the processing part. The retail, indoor range, and classes will be something to keep us occupied for the next several months until deer hunting season starts again.
     
  20. desdawg

    desdawg Well-Known Member

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    Back to the real estate question. Why does the sales contract have to specify any particular business? You are purchasing a property not a business. What you do with the property should be your buiness and no one elses. Can you imagine changing your mind about the type of business you want to run in a few years and getting foreclosed on with your payments current? Because your usage changed? No way. Get that clause completely out of the contract! Just my opinion. Many circumstances can change over the life of a mortgage. Something could happen to one of you. The seller could die and her heirs could want the building back. Etc, etc. This should be a clean real estate transaction with the only contingencies being that you keep the payments current, the property taxes current and provide proper hazard insurance.