Lose The Real Estate And Save The Business, Part 2
Many small business owners purchased the real estate they occupy with their business. It made sense at the time–why pay rent when you could invest in the real estate and make money on the investment as well as enjoy the tax advantages while housing your business? It was a sure thing that made sense… until now. Now the bubble has burst and will not inflate again for a decade. In the meantime, you are paying huge amounts per month to support the mortgage and now with revenues down and the debt remaining the same, it becomes harder and harder to support the monthly debt service.
Forget real estate as an investment. You are paying too much for real estate that is not worth the mortgage and will not recover in the medium- to long-term future, so why own it? No good reason. The real estate is no longer worth the debt. Forget about equity, that’s gone, unlikely to return soon enough and in a large enough amount to warrant the investment now. It’s a bad deal that will put you out of business if not controlled and worked out, and the debt forgiven.
For many, while the debt service is putting you out of business, impossible to support, the core business can be profitable if the overhead can be reduced. You can downsize in many areas except the debt, unless you do a debt workout and achieve forgiveness, not just modification. It is the core business that must be preserved, forget the real estate. The plan has not worked out as projected and it’s time to change the plan. Lose the real estate, save the business.
By the way, there is plan B, which is very interesting. We do the workout on the debt on the real estate, reducing the mortgage dramatically, then sell the building to an investor who will lease the space to you at a below-market price because, of course, the buyer bought it cheap. You get to stay at the location, pay a reasonable rent and achieve the objectives that will support emergence and success. We are putting these deals together now and there is some great potential in this plan. It allows the borrower to get out of the debt yet stay at the same location. It reduces the overhead as well as the debt and supports a successful business operation. Call us for more information.
Stop paying the mortgage now if the real estate is not worth the mortgage. No matter what you do and how you work this out, this is one bill that should not be paid. There is no point. It makes no sense.
