#59 CHOOSING THE LAND* #3 (revised 6/4) "can we afford it?"

V A L U E

E means acquiring the property economically

When shopping for property for the garden store, real estate agents will start with the premier sites. That is their job; to make as much money in commissions as possible. The reality is that the garden store will not support initially and probably will never be able to support the costs of this high dollar land, unless the plan is to hold it for a short time and flip the land, moving to the next one. A garden store, even if it is carefully planned can suck up a lot of square footage. Additionally, purchasing the land may not be the right choice. Sometimes a long term lease makes more sense or a lease with option to purchase might allow the owner to ease into the business. In all of these decisions for the property, the reality of failure must be faced. Any commitments must be seriously considered if the worst should happen.

Is the price right for the land and is the method of acquisition correct?

We chose Tulsa because the commercial land in the area was economical and abundant. We believe that this city and the surroundings are an emerging growth area in the next ten years and a prudent land investment will return well in the years to come. We further believe that this developing commercial corridor where the land is located will be in high demand for a variety of uses.

The amount of property, 2.5 acres, fits into our profile for green garden gates. We determine that, since this land will increase in value in the next 10 years, we may want now or in the near future to have ownership, rather than enter into a long term lease of the land. However, although we are extremely optimistic, we remain tentative of the success of our model. Therefore, if we go forward with this land, we have decided to lease the property for three years with an option to purchase the property at an agreed price anytime during the lease period.

We have entered into preliminary negotiations with the owner about the land. After these discussions, taking into account the added expense of bringing services to the site, the cost of the 2.5 acres land today has been set at 4.75 per square foot, for a total of 517,275.00. We agreed to a “triple net” lease agreement, paying for all repairs on the land, property taxes, and insurance. The base lease would be a fixed three year rate of 1,724.25 per month. The owners of the property agreed that the cost to purchase the land during the first eighteen months of the lease would be fixed at the original asking price of 517,275.00. After the first eighteen months until the end of the 36 months lease, the price to purchase the land would be 569,000.00, a ten percent increase over the original price. It is further agreed that after the first 18 months of the lease contract, we can opt out of the lease and cease operations on the land by paying a penalty of 10,000.00.

This financial arrangement for the property is advantageous. First, it eases the strain on cash flow during the start up period of the business. Second, it allows us to purchase the land at the original purchase price up to 18 months of the lease. Third, it allows us to exit the property with minimal financial burden if the green garden gates model is not successful.