An auto repair business in Hawaii, sold with its shop, a residence and rental units, the seller carrying most of it at zero percent.

The part that makes this rare

A zero percent seller note, principal only, on most of the purchase price.

The seller is carrying most of the purchase price at zero percent interest. Not a reduced rate, no interest at all, structured as principal only against a fixed monthly payment with an eight year balloon. Every dollar of that payment comes off the balance rather than going to a lender, and eight years of it is a long runway on paper that costs nothing to carry.

It is secured differently from an ordinary seller note. Rather than recording a second position deed of trust, the carried balance is held as the seller's minority equity position inside the buyer's holding company, documented in the operating agreement, with the seller retaining the right to assume the company on a default. That keeps a subordinate lien off title, which is what allows a first position lender to fund against the property at full loan to value, and it hands the seller an installment sale treatment rather than a taxable event at closing.

At a glance

What we can show you before you sign.

The business

A shop that has grown revenue three years running, on an island that keeps its cars.

The shop is a full service independent, working on European, domestic and Asian vehicles, SUVs, four wheel drive vehicles and light trucks. Revenue has grown in each of the last three years and the seller reports the current year running ahead of the last again. It is the kind of trade that holds up when the economy does not, because an island where a replacement vehicle has to arrive by sea is an island where people repair what they already own.

Around the shop sits the rest of the price: the commercial building it trades from, a residence, and additional rental units the seller reports as tenanted. Those units are the reason this pencils as a property acquisition rather than only a business one.

The earnings figure here is seller's discretionary earnings. Three years of statements and two federal returns are in the package. As with any acquisition, buyers should complete their own due diligence.

Where the upside is

Most of the value here is in work nobody has done yet.

This is a long tenured shop attached to a piece of island real estate, held by an owner who ran it the way he wanted to and never had to do the things a buyer would do on arrival. That is the opportunity.

• Work the rental sideThe rental units are reported as tenanted, and confirming the leases and rents is part of your diligence. The rental income helps carry the note while the shop trades.
• Buy the building the business already pays forThe shop's rent has been paid to its own owner for years and rises each year. On a purchase that includes the real estate, that payment converts from an operating cost into equity in an asset you hold.
• Advertise, at allMarketing spend on the shop is a rounding error against revenue. Search, maps and reviews are effectively unworked in a market where the shop already holds the reputation.
• Use paper that costs nothingA note at zero percent is cheap to extend and cheap to pay down early. Both options stay open in a way they never are on an amortising bank note.
• Island supply, over eight yearsThe balloon is eight years out, which is a long hold on a constrained island market, and the note accrues no interest against you while you wait.

Ownership has discussed a possible future condominium concept on the land. It is not part of the price or the underwriting. We recommend building your own model from the statements and returns.

Who this fits

Who this fits.