Real estate vs. a business - Posted by john


#1

Posted by john on August 22, 2011 at 19:58:41:

I have two rental properties that provide about a 7% net dividend cash flow on
my equity after expenses. It seems all well and good, but I am debating
whether or not tying up my money in future real estate projects is worth it.

Instead of tying up my money in real estate and waiting 30 years to pay the
thing off, it seems like I should invest in a business that produces significantly
more cash flow. Where the investment could pay for itself in a couple years.
I am specifically thinking about a franchise sandwich shop in a high foot traffic
urban environment.

It seems like that is a faster way to grow wealth than real estate. What do you
guys think?


#2

Re: Real estate vs. a business - Posted by Frank Chin

Posted by Frank Chin on August 25, 2011 at 14:42:06:

I done both, and so did my dad. He and I came into it from opposite directions.

People with sucessful retail businesses generally try to buy the property or a location nearby, before the landlord raises the rent to a point where’s he’s out of business. My dad had a business, and in 1963, the onwer died, and the heirs sold it to a group of investors, even though my dad matched their offer Long story, but the heirs thought the investors can close faster.

The property consists of 3 stores, apartments, and several garages. In 1961, it was sold for $23K. The investors thought they can make a quick flip, but couldn’t make enough on it. So after two years, and not satisified with low returns on rents, they sold it in 1963 for $25K.

My dad retired from the business in 1980, died last year, but we still own the place. He put $10K down in 1963. Currently, the property can net nearly $5,000/month in rents, and a few years ago had a market value of $750K, though it’s dropped since.

My dad’s business before 1980 never netted more than $25,000/year. In 1980, his business went down, and he could’ve done just as well renting the store out, with the advantage that he didn’t have to deal with armed robberies that was going on, with a neighboring shopkeeper shot, and he was visited by the same robber an hour before, but left when some customers came in. It was a close call, so I told him maybe it’s time that he be a landlord instead.

Being in a retail business, you have to realize you’re there 10 hours a day, and in his case, 6 days a week. As landlord, it’s a 30 minute job once a month bringing checks to the bank, and he doesn’t have to worry about robbers.

I’m a real estate investor as well, and I gone into several businesses myself. Many people don’t realize in small businesses, success often depends on a good sales personality. I would’ve done better at these businesses had a been a better salesman. But as a real estate investor, I don’t have to be a joke a minute to come up with good real estate deals.

Bottomline is, having done both, I concluded you can do much better with your time and effort at real estate. My dad never had a pension, but he remarked to me one day that with a $10,000 investment, he funded a comfortable retirement, without having to play the stock market.


#3

Re: Real estate vs. a business - Posted by Marc

Posted by Marc on August 24, 2011 at 14:45:57:

John, there are a variety of ways to invest in real estate. There is no need to deal with tenants and toilets if you don’t want to. You can wholesale, rehab & flip, notes, lease option, etc. Pick your pick. Of course, long term wealth strategy is buy and hold, but you can delegate that responsibility to a property mgr. The name of the game is buying right (period).


#4

franchise sandwich shop - Posted by JT-IN

Posted by JT-IN on August 24, 2011 at 11:42:47:

I can’t believe that you used the terms “franchise sandwich shop” and “growing wealth” in the same sentence. One must question your business accumen based on that alone.

You come to a real estate investment site and nay-say the real estate inv approach and suggest a franchise sandwich shop. Then you want to argue the point, counter-point, and do so with many folks here who have been there and done that… They have accomplished what you yearn to attain, but yet you wish to discard their answers as not truthful or of less value. Sure, they simply aren’t what you want to hear, but you aren’t here to listen to objective and reasoned advice anyway.

Go ahead and buy the sandwich shop, otherwise known as a J.O.B. There are a rare few that make decent money in those endeavors, other than those that have multiple locations within the franchise; in other words the achievers. Other than that it is a meager living; 40-50-60K. If that is wealth, then have at it Mr.


#5

Re: Real estate vs. a business - Posted by Natalie-VA

Posted by Natalie-VA on August 24, 2011 at 09:09:36:

Your business or your job is how you spend your time on a day to day basis.

Growing wealth is about living well within your means and making good financial decisions, regardless of how you make your living.

Real estate just happens to be both for me, and I don’t hold rentals. We’ve been wholesaling and rehabbing for 12 years. It’s a business where you can choose when you want to work and when you want to play – really a nice lifestyle, but definitely a job.

–Natalie


#6

Dad told me… - Posted by Lee in LA

Posted by Lee in LA on August 23, 2011 at 20:12:46:

“Make your money make you money… while you sleep”


#7

real estate IS a business… - Posted by David Krulac

Posted by David Krulac on August 23, 2011 at 18:57:29:

number 1

and number 2: 90% of businesses fail in the first five years, one primary reason is undercapitalization

IMHO, real estate is easier, can be less time consuming, most business owners work 70-80 hours mostly for low or no pay, and the sucess rate is higher in real estate.


#8

Re: Real estate vs. a business - Posted by Bill H

Posted by Bill H on August 23, 2011 at 14:34:24:

Restaurants typically have a 98 percent failure rate.

Those that make it require EXTREMELY long hours and HARD work to keep the doors open.

Think LONG and HARD…and…do LOTS of homework BEFORE even considering a franchise or food service business.

Bill H


#9

Re: Real estate vs. a business - Posted by Nimesh Patel

Posted by Nimesh Patel on August 23, 2011 at 11:09:23:

John, if you are thinking of investing your money into a franchise sandwich shop, DON’T DO IT. Franchises with Subway or Quizno’s are a joke. Perhaps a franchise with a Jimmy John’s or other company may be good.


#10

Re: Real estate vs. a business - Posted by phil fernandez

Posted by phil fernandez on August 23, 2011 at 10:17:23:

I have a good friend that has an established restaurant that he and his wife have owned and operated since 1989. And it’s a successful restaurant. He has been a creative real estate investor for about seven years now and tells me that his cashflow from real estate exceeds his bottom line at the restaurant.

He probably works on his real estate ten hours a week verses 60 hours a week running the restaurant.


#11

Re: Real estate vs. a business - Posted by camgere

Posted by camgere on August 23, 2011 at 09:26:41:

Businesses often look easy from the outside. You need to hire workers to be there from 6:00am to 10:00pm. You need to find ethical, hardworking people to do a job you probably wouldn’t do yourself. Employees who have heroin addict boyfriends in constant need of cash and think schedules are a suggestion rather than a commitment may be more common than you think. I suggest you go to work at one of these sandwich places for at least a month to get a dose of reality. Finding a manager to take all these headaches out of the business for you, and still leave a profit, may be your hardest job. Then you have an investment and not full time employment.

Robert Kiyosaki discusses the difference between investments and jobs in his book “Cash Flow Quadrant”. Spend an hour or two at the library reading it.


#12

Re: Real estate vs. a business - Posted by Paul

Posted by Paul on August 23, 2011 at 01:51:09:

With sandwich shop.you.will
have to work your whole
life, check-in up on the
thing and running it
yourself if you want to turn
a decent profit. With re you
can hire a property manager
to do all the work for you,
all you need to do is pick
up the check. The key is to
use as little of your own
$$$ as possible.


#13

Re: Real estate vs. a business - Posted by Woody

Posted by Woody on August 22, 2011 at 21:45:56:

If its Quiznos you will want to pass. What you google is true and the corp. is looking a bankruptcy from borrowing huge the last couple of years to try and come back. Sandwhich shops and resturants in general have a small profit margin, unless your leverage is way small.


#14

Re: Real estate vs. a business - Posted by brandon

Posted by brandon on August 22, 2011 at 21:27:25:

This is a creative real estate investing forum…meaning most of us find ways to NOT invest our money in real estate. We invest our time and other people’s money. Then we find ways to get someone else to pay it back.

Start looking at from the perspective that you have NO MONEY or very little money to invest and when you put together purchases where you have less than 2-3% of the purhase price in the deal you will see how much faster you can get your cash out.

Im closing a 3 unit apartment building on Friday for $105,000 and Ill have right around $1400-$1500 out of pocket to close it. This is mainly insurance, legal, closing and inspection fees.

The property will be a nice gift to me from my tenants one day.


#15

Re: Real estate vs. a business - Posted by arlanj

Posted by arlanj on August 22, 2011 at 21:10:46:

Real estate is the fastest way. Buy cheap houses. Rehab and then rent. The renters pay for the house for you. Basically let renters build your wealth.

My renters pay for my houses, my comercial properties, my living expenses, my vacation house, my entertainment, my taxes, my everything.

My “business” is to invest in real estate and then to find people to pay for it(the renters). They are making me rich.

As far as - how long it takes depends on the amount you are paying for your houses. If you invest in cheap houses, the rent should pay for the house in 10 years or less. SOme of mine will pay for themselves in less than 5 years. Add to that the tax advantages and appreciation, what a great deal.

The ultimate business.


#16

Re: Real estate vs. a business - Posted by john

Posted by john on August 25, 2011 at 21:26:49:

Great Story!! What kind of real estate deals do you work on?


#17

Re: Real estate vs. a business - Posted by john

Posted by john on August 24, 2011 at 16:42:12:

Flipping is too risky for me, besides what’s left over after you pay
ordinary income tax, 6% commissions and all the money you put into the
property to fix it up?


#18

Re: franchise sandwich shop - Posted by john

Posted by john on August 24, 2011 at 16:46:28:

Let me clarify something that your missing. Leverage is not just obtained
in real estate it’s also obtained in business. The franchise model is one
example. If i have 3 shops earning me income and a manager to run all
three that is no different than having a bunch of real estate properties
and having a property manager overseeing them. One difference is that
the return on capital can be a lot quicker than traditional buy and hold
real estate by letting the tenant pay down the equity.


#19

Re: Real estate vs. a business - Posted by john

Posted by john on August 24, 2011 at 09:47:46:

I view flipping as a risky game, but I guess if you know what your doing
go for it. If you flip a property within a year you have to pay ordinary
income taxes, 6% sales commission and all those repair costs. I don’t see
how there is any profit left over?

The only thing that I will concede with regarding real estate is that you
have other people building equity for you via rents. In a business the
same is true, you have other people operating the business…ideally you
have several businesses/franchises to grow your wealth. MLM (multi-
level marketing) businesses are also built on this principal.


#20

Yes Sir!!! - Posted by wiseman

Posted by wiseman on August 24, 2011 at 13:46:25:

n/t