Down Payment
Most banks & financial institutions will usually require a down payment of 20% - 25%. With owner financing, the down payment usually is all the cash the Seller will receive at the closing. A Seller may sometimes require a larger down payment to allow them to pay expenses. (i.e.: mortgage, broker fees, legal fee, real estate transfer tax, sales tax, capital gains tax) also the Seller may wish to have enough to put a down payment on a house, purchase a motor home or to have a cash reserve for many other reasons.
Taxes & Other Fees
A Buyer will also need money to pay bank fees, (i.e.: origination fee, points, SBA point fee) or other bank charges such as an appraisal, document preparation, perhaps an environmental inspection, as well as title insurance and/or life insurance. In addition, a buyer will have real estate transfer taxes to pay in many states, recording fees, legal council and perhaps a few other miscellaneous expenses.
Working Capital
A Buyer should also have some additional funds for Working Capital. Other immediate expenses may include reimbursing the Seller for prepaid advertising, fuel in storage, store inventory and perhaps other items negotiated with the Seller - plow truck, backhoe, 2nd golf cart, etc. An insurance binder will also be required at Closing and the insurance company will want a substantial premium payment, the utilities company will probably require a security deposit, which can also be substantial. A Buyer may also wish to order additional store stock, make certain immediate improvements, increase the advertising or make other similar expenditures.
Pre-Collected Deposits
Depending on the time of year of purchase, such as the spring, a Buyer, at the Closing, may be handed several thousand dollars or more by the Seller in the form of pre-collected deposits for the upcoming season. Although it is part of the total revenues to be generated for the entire season, it is certainly helpful to have those deposits in hand at the beginning of the season. In some cases this may reduce the amount of initial startup working capital needed by the Buyer.
