1. you can't just "value" a business at 750K or 1.4MM.  You have to find someone willing to take the other side of such a valuation (ie an investor who agrees that the business is worth that much and buy some % at that valuation).  With a profit of only 15K/year and a building worth 250K, I don't think too many investors will be excited to cough up the rest of those large sums as "goodwill".  Those ROR calcs are meaningless unless you can find someone who will accept the risk on that basis.

2.  There is no "bank magic".  They are taking titular ownership of the building in exchange for 250K of depositor/bank stockholder cash.  The money doesn't come out of thin air despite what the anti moneylender crowd say.  To create leverage, banks have to borrow too.  Perhaps it's a house of cards, but there is no magic.

What makes borrowing 250K to buy a building from its owner toxic?  Paying interest?  In that case is paying rent to a landlord also toxic?  Getting the use of something without buying it or making it yourself costs something.