Building a shop questions...my situation/ SBA loan/ etc.

jamscal · May 5, 2019

I have a chance to buy a steel building where a deal went bad....no it's not the usual -act now- scheme from the steel building supplier.

Lets say a $150k building I can get for $75k...engineered, drawings, insulated, many windows, bay doors and man doors... I have all the paperwork and invoices available, and the building has been stored in shipping containers for 1-2 years.

It's about 20% larger than my current leased shop, so it's a good fit.

Then of course I'll have to buy land, a slab, install plumbing and electricity.

I know I'll be in for *up to* $400k.

Local-ish business park has an acre +/- for $100k graded flat.

Question 1:

Will a SBA 504 loan be the right move?

Question 2.

Will a bank consider the value of the building at $150k, gaining me some/ a lot of built in equity?

Other considerations:

I have excellent credit. I have enough for a 10% down payment (504) for the total...probably up to 20%. I can get out of my lease rather easily I suspect.

I don't *hate* leasing but the last go-round of rent increases kind of hurt, and the quick numbers show a 20 year mortgage would be cheaper than rent.

Thanks

thunderskunk · May 5, 2019

jamscal said:
I have a chance to buy a steel building where a deal went bad....no it's not the usual -act now- scheme from the steel building supplier.

Lets say a $150k building I can get for $75k...engineered, drawings, insulated, many windows, bay doors and man doors... I have all the paperwork and invoices available, and the building has been stored in shipping containers for 1-2 years.

It's about 20% larger than my current leased shop, so it's a good fit.

Then of course I'll have to buy land, a slab, install plumbing and electricity.

I know I'll be in for *up to* $400k.

Local-ish business park has an acre +/- for $100k graded flat.

Question 1:

Will a SBA 504 loan be the right move?

Question 2.

Will a bank consider the value of the building at $150k, gaining me some/ a lot of built in equity?

Other considerations:

I have excellent credit. I have enough for a 10% down payment (504) for the total...probably up to 20%. I can get out of my lease rather easily I suspect.

I don't *hate* leasing but the last go-round of rent increases kind of hurt, and the quick numbers show a 20 year mortgage would be cheaper than rent.

Thanks

I don’t know much about SBA. I do know it’s fairly circumstantial as to whether a lender wants to count a “good buy” at full equity despite purchase price. Kind of like buying wholesale goods: you buy Knick knacks for $.50 a piece when they’re worth $1.00 retail, you’d have to play the game to get the bank to think your inventory is worth $1.00 a piece.

The condition of your business is an immense factor as well. How much is a square foot worth? At my last employer, we combined two shops and spent a lot of time figuring out how much floor space was worth. We estimated a range, then looked at what machines were making the most money per floor space. It’s fairly simple math, and it’s OK if the answers aren’t perfect. I think in your situation, it would give you a better idea of whether that 20% more floor space is worth the investment.

On that note, sure, maybe the end monthly payment is less. Other things to consider is your machine down time during the transition, insurance rates for that location, possible hiccups in the move (machines don’t work after install, building parts don’t quite fit, outside services are delayed, etc). Not saying it’s a wash: you have to do the numbers with your income statements and bank terms on your own, but if your gung ho about the move, you might consider doing 10% down so you can cover unseen circumstances.

Trboatworks · May 5, 2019

Shop the building as specified with other vendors.
75k buys lots of steel building- designed for you, not dead inventory.

Call these guys:
Home - Braemar Steel Buildings

metal-ica · May 5, 2019

I would do it. Before you know it you'll have the thing paid off and sitting pretty. (or at least that should be the plan)

I bought my building two years ago. There were painful nights but now that the dust has settled I'm very happy.

I doubt the lenders will acknowledge the built-in-equity of the reduced cost building but it's inconsequential anyways.

Tony Quiring · May 5, 2019

Trboatworks said:
Shop the building as specified with other vendors.
75k buys lots of steel building- designed for you, not dead inventory.

Call these guys:
Home - Braemar Steel Buildings

X2...

Engineering can be iffy.

You need to verify the building "kit" meets current engineering requirements for wherever you place it.

If manufacturer still in business then easy.

The doors and glass add up quick but if sitting for long time it us still over priced.

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Bondo · May 6, 2019

20% bigger sounds good, but is it designed 20% better for you. Meaning is it an efficient design for you.

If it has been sitting for a couple years, it's very negotiable in my opinion. That's 2 years of door sagging damage....

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Karl_T · May 6, 2019

I'd be sure to look around for an existing building to purchase. Serious deals can be had.

gustafson · May 6, 2019

Who says the building is worth 150k?

Find out yourself what a brandy new building of that square footage is worth

I mean, if it has 75k worth of options you don't want.....

IOW get a quote on the building you would want.

compare

I found the SBA loan process unhelpful years ago. It is basically just a guarantee of a regular bank loan, so it is really another level of paperwork that may or may not be helpful

Having a good relationship with a local bank is probably more useful

gustafson · May 6, 2019

Oh, and the bank will consider the value of the building what it will sell for[finished on the land].

If a building that size sells for 300k it is worth 300k, if it sells for 3 box tops and 5 returnable cans, that is what it is worth

gbent · May 6, 2019

When a man pays $2. for a needed $1. item he feels good. A woman pays $1. for an unneeded $2. item that is on sale and feels good. Which are you?

Were you seriously planning to buy a building before you ran across this "deal"? Is this building of the quality it will fit in the business park where you are considering building? Have you found someone to act as general contractor for the building? If you have the time to act as your own general contractor you don't need a bigger building.

Ries · May 6, 2019

I got an SBA loan, many years ago, and it took longer, loaned for less value, and was more hassle than a regular bank loan. I did it because it was a commercial building and at that time, SBA was the best terms, lowest interest rate, and many conventional lenders wouldnt even consider it. But it wasnt anything like getting a regular house mortgage- more hoops, more hassles, less features and bang for the buck.

So dont expect that the SBA is gonna solve all your problems.

I agree with the advise to price exactly what you want, in a new built to order building.
Also, depending on zoning, you may be much cheaper just getting a pole barn, as opposed to a metal structure building.
Do you need a bridge crane? often, its cheaper to just build a freestanding bridge crane inside a wood framed pole barn, if the building code will allow that.

Usually a real metal frame is only really needed if you have really big spans. And absolutely want no posts. Otherwise, pole barn construction will save money, time, and is more familiar to the building departments, so usually they hassle you less and require less expensive engineering.
YMMV.

ewlsey · May 6, 2019

Ries said:
Otherwise, pole barn construction will save money, time, and is more familiar to the building departments, so usually they hassle you less and require less expensive engineering.
YMMV.

Pole buildings certainly offer a lot of bang for the buck. I have heard of guys getting a lot of hassle from insurance companies though. In the pre-cambrian brain of an insurance auditor, wood=fire.

I remember an insurance auditor just having a fit that we had wooden pallets in a warehouse. Yet he didn't say a word about the hundreds of molded plastic knock-down containers we had stacked everywhere.

Also, some municipalities will not allow pole construction for industrial buildings. I know inside the city limits here you have to have an engineered foundation wall. But, I have seen some pole type building built here using concrete piers.

irontoys · May 8, 2019

Not one to dissuade, but... If in Jefferson county, permitting can take 6 months. LGE doesn't like to give out 3 phase power. Find out what is in your target location. You might be stuck with 208 3phase service. Plan on future requirements, and know that LGE will undersize transformer anyway. If service not available on your side of street, you will have to figure in a transformer vault. Depending on which side of town, sprinklers now required to be wet. (mandatory heat in winter) If open to public, handicap restrooms, and ramps required. Louisville is not as business friendly as hizzoner suggests.

jamscal · May 9, 2019

irontoys said:
Not one to dissuade, but... If in Jefferson county, permitting can take 6 months. LGE doesn't like to give out 3 phase power. Find out what is in your target location. You might be stuck with 208 3phase service. Plan on future requirements, and know that LGE will undersize transformer anyway. If service not available on your side of street, you will have to figure in a transformer vault. Depending on which side of town, sprinklers now required to be wet. (mandatory heat in winter) If open to public, handicap restrooms, and ramps required. Louisville is not as business friendly as hizzoner suggests.

I wouldn't build in Louisville...it would probably be in Brooks. I've heard too many horror stories about building new in Louisville.

Ironically, this building was to go in Oldham Co but they put the owner through the ringer and that's a reason this is for sale.

He bought an existing building there instead. (other factors were at play though.)

jamscal · May 9, 2019

Thanks for all the replies. Definitely a lot to think about.

I'd like to move towards having my own shop so maybe this will spur me to start talking to my accountant and go to the bank to start some conversations.

Thanks.

gustafson · May 9, 2019

irontoys said:
Not one to dissuade, but... If in Jefferson county, permitting can take 6 months. LGE doesn't like to give out 3 phase power. Find out what is in your target location. You might be stuck with 208 3phase service. Plan on future requirements, and know that LGE will undersize transformer anyway. If service not available on your side of street, you will have to figure in a transformer vault. Depending on which side of town, sprinklers now required to be wet. (mandatory heat in winter) If open to public, handicap restrooms, and ramps required. Louisville is not as business friendly as hizzoner suggests.

Lots of places don't have 3 phase on the pole, never thought much about it till driving around Maine and realizing there was but one wire on the poles on the state highway

Heat in the winter, what luxury...........

The ADA has been the law going on 30 years, if you have a drive in door you are not going to need a ramp. A handicap restroom in new construction while not insignificant size wise, is not a huge financial imposition.

We are all one car accident away from finding such things in our interest.

I still suggest the OP get quotes on the building he wants, rather than trust the sellers of this particular building

Guest · May 9, 2019

I honestly would try to buy an existing building than have one built, save the headaches and there will be plenty. I had a bad experience just having a 30 x 40 built on my property in California. I was even in a county area. The planning and zoning people kept adding on to what they wanted. There was issue of concern that the path to the shop driveway would cross a leach field. Problem was the county had two separate drawings for my leach field and did not know the correct one. I spent $8,0000 for a plumber with a back hoe and plenty of hand shoveling to plot the leach field and the connection to the county supplied water. Also all the inspectors interpreted things differently, some you could reason with others were total jackasses. Some didn't seem to have a lot of knowledge of what they were inspecting, that was definitely true of the guys inspecting the electrical installations. I swear, I am pretty sure one guy could buy off a job another guy would flag for a half dozen violations.

gustafson · May 9, 2019

Dualkit said:
I honestly would try to buy an existing building than have one built, save the headaches and there will be plenty. I had a bad experience just having a 30 x 40 built on my property in California. I was even in a county area. The planning and zoning people kept adding on to what they wanted. There was issue of concern that the path to the shop driveway would cross a leach field. Problem was the county had two separate drawings for my leach field and did not know the correct one. I spent $8,0000 for a plumber with a back hoe and plenty of hand shoveling to plot the leach field and the connection to the county supplied water. Also all the inspectors interpreted things differently, some you could reason with others were total jackasses. Some didn't seem to have a lot of knowledge of what they were inspecting, that was definitely true of the guys inspecting the electrical installations. I swear, I am pretty sure one guy could buy off a job another guy would flag for a half dozen violations.

Here I know you have a plan, and then an 'as built' My last house one of the septic trenches was quite different because they ran into a giant rock at the end of the field.

You hear horror stories in cities and counties. in cities at least you have rules, but there are a lot of them. Out in the country it can be whatever the inspector says, and that may change from day to day.

One of our local inspectors is a notorious hard ass. I mean, consider him a friend, but you do not mess with him. Whenever offering advice about him I will always say, 'never try to tell him anything' and that is a good plan with any inspector. Kinda like Jeopardy, failure to use the form of a question is always the wrong answer.

Guest · May 9, 2019

gustafson said:
One of our local inspectors is a notorious hard ass. I mean, consider him a friend, but you do not mess with him. Whenever offering advice about him I will always say, 'never try to tell him anything' and that is a good plan with any inspector. Kinda like Jeopardy, failure to use the form of a question is always the wrong answer.

Ha,ha I questioned one of the guys inspecting the load center in the shop install, he was an idiot, but I should have kept my mouth shut. He claimed the earth ground was not earthquake proof because the bare copper wire entered the enclosure through a cable clamp used for sheathed cable or typical house wire many people call by it's brand name Romex. I hired out the wire run to the shop and the load center and was going to finish from there. Anyway Mr. Idiot building inspector claims a strong earthquake could shear off the earth ground wire. Of course the panel was also grounded to the rebar in slab. I then proceeded to ask him whose words he was parroting or did he make that up all by himself? I told him any earthquake strong enough to shear that off would also bring the whole building down and all the electrical infrastructure in the area.

Long story short, to get the whole building bought off just as a storage building I needed minimum lighting and an outside lights by the two doors. Just getting that passed was like pulling teeth after the dust up. Worse yet they keep sending the same guy out after the dust up, before that I was getting a rotation of inspectors.

DouglasJRizzo · May 10, 2019

Speaking from experience, I have to say a metal framed building is my preferred way to go. Last building I was in was a pre-fab "kit" where the roof rested on the front and rear walls and nothing else. One day - boom - it came down.

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