Franchising vs RE Return on Investment... - Posted by Jimmy

Posted by Ronald * Starr(in No CA) on September 16, 2003 at 09:58:00:


I think your question is impossible to answer. By analogy, would you ask this question: “How good do used cars run?” “Can I buy a used car and be sure that it will work well over the next few years?”

Just so, some people make very high returns, some do not.

Besides, you are comparing having a job to having an investment. The two are different. What if I tell you that a typical rental house, bought with positive cash flow has at least 20% annual return, which is probably true. Compare that to what your friend is making. Then ask yourself, how many hours a week would I have to work on the real estate investment? The answer: an average of about 1. But, it will be lumpy, with most weeks it being 0. Some weeks it will be 10 minutes, to deposit the rent check at the bank. And some weeks it will be 60, as you prepare to rerent the property and are showing it and checking out rental applicants. But, on average, about 50 hours a year.

Make you decision not on the expected return. Ask yourself what you want to spend your time doing. If you have an activity that you enjoy doing, you will put in the effort to make it successful. You can figure out how to improve the income prospects once you have found the activity you enjoy doing.

Most people who get excited about the money-making prospects of real estate drop out in about 2-4 months, 6 months top. They are not really interested in the field or the activities. Those who are successful in real estate investing often “love it,” or at least like it.

Good Investing*Ron Starr

Franchising vs RE Return on Investment… - Posted by Jimmy

Posted by Jimmy on September 16, 2003 at 08:18:00:

I recently had a friend purchase a small Subway franchise here in Houston with under $100,000. He has been at it for about six months and he is doing pretty well with it. I was wondering whether for that same $100,000 you could generate the same annual cash flow that the franchise is generating. I don’t know the numbers for sure, but maybe someone here has franchised and could throw out some monthly income numbers. I just want to know what kind of return on investment that same amount of hard cash could turn in the RE market whether in foreclosures, pre-foreclosures, rentals, etc.


Re: Franchising vs RE Return on Investment… - Posted by Frank Chin

Posted by Frank Chin on September 18, 2003 at 08:12:48:


I’m a REI, plus I purchased a business not too long ago. I’ve both studied and involved in other small businesses thru the years, owning and selling some.

Generally speaking, a small business bought or sold in my area makes 100K or more to be sold thru business brokers. The ball park asking price for such businesses, especially service type businesses, is three times its annual net. Adjustments and allowances should be made for businesses with large amounts of owned equipment, inventory etc.

So a business netting 100K a year will have a asking price of 300K. That translates into a cash on cash return or 33% for an active operating business.

On the other hand, the average cash on cash return for RE rentals is 6%. So, the answer is, you make a higher return on an active business, 33% versus 6%.

What is the reason??

An active business, even an absentee one, is a job. Active businesses does not have a predictable stream of income. The Subway franchise can lose money if a nearby anchor store at a mall closes. The Subway franchise can lose money if a Blimpies or Burger King opens up down the street. If you are the sole owner and employee, the Subway shop is closed when you’re sick.

Compare this to a RE investment. My dad entered a nursing home recently, and the rent checks kept on rolling. He retired 20 years ago from a small business where he had to close up after surgery and recovery that took almost two months. Most of his customers left.

I minimize some of these risks thru owning a absentee business. The business runs and makes money whether I there or not, sick or not. But in the long run, I have to be involved to make it successful.

When you talk about foreclosures, preforeclosures, are you talking about flipping, wholesaling, or renting?? Flipping and wholesaling to me is a home based business where you buy and sell, and the money stops coming in when you’re sick. In this case, the returns could be as high or higher than an active business, but the downside risks are the same.

Hope this helps.

Frank Chin