My connundrum...Picking your brains

[Lucy in the Sky]

Yes, Stephen I plan to buy the box, but Lucy had surgery for the foxtail, the cat had xrays for a sprained ankle and the chinchillas just went in for their annual tooth check, so next month!!!
Anyway, here's my connundrum.
There is a business with a house in a residential business district that I am going to look at in a week. We currently own our home in a different state, but have been planning to move to this state for a while to be close to my family. Because the business will be our jobs, how would we prove our income in order to get financing? We would like to get 100% financing and save our gains from this house for living costs, etc.
Would it be feasible to ask her if we could "rent to own" for a couple of months until we had some income to justify the home loan?
That is part A.
Part B is the buying process itself. When we buy, do we get seperate loans for the house and business? Because the house obviously will not appraise at what the house plus business will cost. Will a mortgage lender accept/ or even look at a business plan? Thanks for any advice you all have.

[Admin]

This is a most complicated question and open to so many variables.

1) True business loans require a business plan 99% of the time.

2) You have no proof that this business, which in this case is qualified as a dreaded "start-up" to the banking world. Start-ups have it harder because you have no proof of cash flow, the business hasn't proven itself etc. They are not going to lend based on what you say you will make from a start-up especially with the current bubble busting in many areas.

3) How to get all around this for the most part. Well I had a friend who had no job and bought a house, got the mortgage, but he could show $100,000 in the bank savings and lenders wanted to lend, so they photocopied 3 successive months of bank statements showing he had the money and he got the mortgage. Not every lender was willing but he found one.

4) If you have enough other assets to back what you want to get, the more likely someone who wants to lend will lend.

5) It is important your business plan shows income only from the grooming operation. They will look to see if the net income which becomes your gross income to distribute to you will after taxes cover the mortgage.

Based on thousands of clients I have experience with the normal procedure is to one, get the business making money (commercial location usually) and then buy a home. So you want a home business, and you want a new business to pay for the home. You need A LOT OF BACKUP cash and another "current assets" to get this accomplished. Remember, they will rarely believe you if you state that your business will give you more than a few thousand dollars the first year after operating expenses, many businesses run at a loss the first year or two for larger startups.

The odds are against you UNLESS you have plenty of backup assets. They bend over backwards when you have 6 figures in savings and I can tell you that from much experience. Otherwise with the mortgage bubble breaking it is getting more difficult all the time unless you have steady jobs and not planning a startup.

Actually again depending upon your down payment and equity situation, I would get the house mortgage alone first, and borrow against the equity to start the home business which shoestring can be $10K, some less, but again what is the amount equity now etc. In fact if the loan is that small and you do much of the work yourself, you don't even have to show them a plan, you are simply borrowing against your equity line.

But that is the route I would go but you have to have income from jobs or tons of cash in bank so you are not dependent upon the startup income.

Remember the bank is almost certainly going to ask for SBA backing and the SBA today wants you to put up about $1 for every $3 loaned and they definitely take apart your household costs.

Regardless you should have the business plan and don't mix anything to do with the house in it, in other no mortgage payments. That is not done unless the business owns the property in its name, and that is rare. They are going to look carefully at your household costs which are paid by AFTER TAX income from the business, and they will say, from a startup!*$&#( No way the first year, perhaps a token, high risk etc etc.

Once again, well OK because you have plenty of cash in the bank after your home downpayment, OK we will do the loan and your plan will go smooth. If not you have definite challenges unless you keep at least one party employed now to pay the bills.

[Lucy in the Sky]

Maybe I didn't make it clear. The business has been established for 12 years, owner looking to retire. shop and equipment and client list included with sale of home. So, would it be considered a start-up since we would be new owners? Or could i use her financials for the last 3 years to show that the location has been making money?
Our original plan was to move to the community, rent for a few months and then buy a house, and then use the equity to finance a shop.
This seems like a dream come true, since it is all included.
Maybe I will talk to her about a possible rent plan if I lke the house and shop. Thanks for the info- I know it is complicated!!

[Bow wow style]

Selling my "home" business

Lucy---move to Arkansas!
My home is worth 300 to 375 big range I realize but you would have to see the area to understand. Keep the overall market in mind on the low end.
Now a business that is worked by one main person is VERY hard to price. At one time a business of any nature was worth it's gross for a five year period. Today that would be absurd. But it would not at all be absurd to ask one years gross in a business that has proven itself steady. My business can pull in almost $100,000.00 per year (and yes I work hard at it) and would pull in more if it had two steady persons or were open more than 4 1/2 day average per week or even just pushed product and/or softnail/teethcleaning ect.
So this business with the right person or persons would pay for it's self. (and then some) Keep in mind, home business have a lot of write off that normally would be paid out of pocket.
Also some or most self employed groomers don't keep up front books (if any) I am Incorporated and working on bringing my books up to a complete accurate. One of the many reasons groomers don't do this is because they don't "think" they will ever sell there business and/or they are to tired after work to do the paper worked involved. Also by NOT keep correct records, you REALLY hurt your social security pay out and yes I do believe it will still be there in my time! I have a bookkeeper one day a week to cover that area for me. OK, as for showing my books and if my equment go with. YES, I would show my books and yes, the equment is part of the business..

[Lucy in the Sky]

Thank you Bow Wow! So, I am going to see the owner when I go visit my family next weekend. I am very excited, but also nervous at the same time. She and I seemed to really click when I spoke to her on the phone, but she was impresed that I quit working as a groomer to go to a job where my education could be a priority for me. I am working toward my business degree- hoping that a bank will like me more for it!. I have been thinking about what the Admin post said. If I like the place, then I will thing about asking her if we can rent the house for 6 months and buy the business forst without the house. That way we can show proof of income for the mortgage. We will have enough capital for collateral for probably 40% of the business cost, maybe more.
My husband questions my sanity- I have a great job at a desk that has encouraged my skills in accounting, and he can't figure out why I want to work 12 hours a day and live off a shoestring budget for 6 months to a year until it really gets going!! But my heart is in educating dog owners about how to take care of their babies and clipping them and making them pretty- the dogs, can't help the owners.