I’m considering buying an existing stucco business ($4m sales, 50 employees) in California. I do have contracting experience ($1m+, 25+ employees), but not in stucco and not in CA. My main concerns revolve around liability insurance (increasing cost, availability, etc.) and risk of lawsuits (from jobs completed years ago) even though the company has an excellent track record. Unfortunately, for a number of reasons I will purchase the stock of the existing company (vs. an asset purchase). Any comments on my insurance and lawsuit concerns? Owner says he’s getting out because he wants to pursue his real estate business. Should I believe him or should I consider real estate instead!?
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I'm not from Calif. but from what I've been reading {check out JLC magizine website it has a forum similar to this - Journal of Light Construction.} it looks like the liability ins. and workers comp. ins. in Calif. is in the process of going threw the roof. New legislation, ins. co.'s raising the rates 25% to 60% starting this year. There are problems with the EIFS systems I believe in that state which ties into the liability rates. There is no good news for contractors in Calif. I would investigate this more if I was you. I don't have ALL the facts but this is what I've read.
The California stucco contractors I know are poor as church mice, dodging one creditor after another, have a tough time getting (and retaining) compentent help, and thereby end up competing against their own employees that are looking to moonlight.
Now maybe that's cause I've never met the good ones.
I also hear that the sources of stucco sand are disappearing in S. California. Recently, parts of Mexico banned exports of sand to California. I'm not sure if these are reasons for your guy getting out of the business or what.
Another guy getting into real estate investing? In California? Why does this suggest to me an upcoming crash in real estate prices? The '94 Northridge quake took real estate prices down about 50%. Can that happen again?
If so, I think I'd rather have a stucco/masonary business in place to hedge against the possible downside risk of declining real estate prices. There would be a whole bunch of business that would be calling after those walls and such cracked and/or fell.