A related-party lease priced like arm's length rarely survives buyer diligence

Three weeks before listing is the detail that would stop most operators cold. That's not a lease, that's a pricing instrument built for the sale.

There is a smaller version of this pattern on residential deals. Take a fourplex where the seller's daughter is in unit three at $1,400 when the other three are $900. The tell is usually the security deposit ledger, no entry for her. Deposits are a decent tell, related party tenants almost never post one. Would checking that ledger have flagged it earlier here, or did the file not go that deep?

Dumb question I'd have been too embarrassed to ask in person. If the seller had actually signed the personal guarantee, would the deal have worked at $690k? Or is a personal guarantee from one guy who runs a parts store in a town of 4,200 worth basically nothing to a commercial buyer anyway?

@jessreyes12 it's worth something but not $21k a year of income something. Buyer would still discount it, because collecting on a personal guarantee means suing a local guy in his own county and then finding assets. What it mainly buys you is the seller having skin in the outcome, which is why the refusal was so informative here.

I've gone over this a couple of times. So the income was real, he was actually paying $9/sf, but a buyer values it at $4 to $5 because that's what the next tenant would pay if he leaves? I think I understand why, I just want to make sure I'm not missing something.

@kevin_lombard that's how I read it too. The rent is real today and worthless the day he walks, and he controls both sides of that.

Same family of mistake as mine last month, I priced someone's opinion of income instead of the income. The tertiary market part scares me more than the related party part honestly. A 10.5 cap and only two buyers in the whole state who'd look, that's a thin runway even if the rent roll had been clean.

The refusal to guarantee is the whole post. Take a landlord who sells a building and is asked to guarantee the tenant's lease personally. A reasonable owner often declines, because they want the flexibility to move the business within a few years. Sellers who do this usually aren't being sneaky, they just want the number and the flexibility at once. Ask them straight: are you willing to guarantee this for the full term. Buyers get an honest answer surprisingly often.

Would a note structure have saved it? Say the seller carries 300k behind a 390k price, so they get closer to their number over time and the buyer's risk on the lease is offset by the paper. Worth testing whether that structure would have changed the outcome here.

@raj_mehta14 people do that, but it doesn't help a wholesaler much. Your fee comes out of the spread at closing, and if the price drops to $390k the spread you were counting on is gone whether or not the seller finances part of it. The structure fixes the seller's problem, not @laurenkim53's.

Getting half the earnest back after arguing is a better outcome than most see. Did the contract have a specific out that got used, or did the seller just take the deal to make the buyer go away?