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Three restauranteurs discover that investing the proceeds of their business sale is better than paying off mortgages.

Three individuals were joint owners of a successful restaurant in the southeast. After many years in this fast-paced business, they decided it was time to get out. Before the partners even had time to get comfortable with the idea, they had an interested buyer.


The net proceeds from the sale were estimated at $36 million. With such a windfall, the partners knew they needed help in managing the new assets. So, they turned to their trust & estate attorney – a long-time trusted advisor – to set up consultations with some local wealth managers.


The benefits of borrowing


Each partner had multiple mortgages of more than $3 million, and most had 30‑year fixed terms with very high rates compared with the current rate environment. As might be expected, the partners thought that paying down their mortgage debt using the proceeds from the sale of the restaurant was the course of action.


In our first meeting with the partners and their attorney, we listened carefully to understand their long-term goals as well as their immediate needs, like paying down their mortgages.


 We completed a mortgage audit for each partner, and in the second meeting our regional mortgage banker recommended a customized lending solution to address the partners’ mortgage needs in a cost-effective manner: 100% Mortgage Financing with additional collateral, in conjunction with an Investment Credit Line (ICL).


The line of credit ensured a ready source of liquidity for the expected tax obligation from the sale of the business, and by combining it with a mortgage, all three partners realized the following savings and cash flow benefits:


  • A $100,000 reduction in annual interest expense
  • A $150,000 yearly increase in cash flow


Refinancing the mortgage debt instead of paying it down completely enabled the partners to invest 100% of the proceeds from the sale of the restaurant. In addition, the mortgage solution selected provided diversified interest rate protection that coincided with future liquidity events.


As counter intuitive as it might seem to borrow after receiving a windfall, the partners benefited from a more holistic approach to wealth management.  By combining banking and investment strategies, they were able to meet all their goals and objectives.

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