Real estate vs. a business - Posted by john


#21

Re: real estate IS a business… - Posted by john

Posted by john on August 24, 2011 at 19:01:37:

90% ??? Okay, I know your trying to make a point here, but this isn’t
Greece. The main reason people fail at business is lack of business
experience.


#22

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

Posted by Lee on August 25, 2011 at 03:27:07:

One Real Estate Investor I know owns over 100 houses.

He has also owned about 15 business over the last 40
years and he told me that nothing has made him as much
money as real estate has.

He normally buys houses on the low end and fixes them
up and rents them out for cash flow. He normally pays
about $10,000-$15,000 per house and in 2-3 years he has
all his investment back.


#23

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

Posted by Belly on August 23, 2011 at 15:24:59:

Them samiches iz guud.


#24

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

Posted by Tomy on August 23, 2011 at 11:11:01:

When will that day come 105 seems it wont be paide off soon !LOL


#25

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

Posted by ToMmy on August 23, 2011 at 11:24:44:

Yeah right can show me the papers ? Where location? cheap houses in bad areas? lol! Hard to maintain for 10 years with Red necks & STUPID TENANTS all over LOL I’ll be dead by then! appreciation hmmm? Whene in 5 years? We are gong in our third recession ! Everybody talks about how great real estate is!lol But nobody tells us where to buy? How much money do I have to spend to get a good cash flow return every month after all expences paid? I need 5000 dollars cash flow a month !ULTIMATE BUSINESS > YEAH FOR THE ILLUMINATIES !lol


#26

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

Posted by john on August 23, 2011 at 09:54:21:

I understand the headaches and risk of a business. Hopefully a good
manager would be key to running things. I just think real estate is a
snooze fest when waiting for your tenant to pay down the mortgage 30
years from now. In 30 years I will be too old to enjoy the wealth! I’m
looking for a quicker return on investment.


#27

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

Posted by Frank Chin on August 26, 2011 at 05:07:46:

John:

I worked at buying properties in the NYC area here at 15% below market or better. I done this staring in the early 80’s, but at the time it would take me to at least look through over 100 properties before I find something this undervalued.

I bought them for the purpose of holding, but also to flip if at all possible, only found a buyer for my flip in one case, but the deal fell through the last minute after he got a mortgage, but then lost his job. I bought the place for $70K, had a contract signed for $127,000 which would have been a nice profit for me. So the property remained a nice rental for me, cash flowing well all these years because I got it so cheap.

Prices in my area peaked in 1986, then crashed bottoming out in 1993 when I started buying foreclosures, here in NYC, and in MA. So I found in my area at least, the trick is to buy on the dips, and then sell at the peaks, with the patience to hold on and not be frustrated with low returns.

Through the years, I’ve been more a buy and hold landlording type guy. In the early 90’s my wife was able to quit her job and manage our rentals full time, replacing her salary. This was even though returns were low. I was doing well in the IT field at the time, so I stayed at it.

I got into looking at doing my own business because when I went out to do acquistions, the banks looked at my job income, and only 75% of my rental income, even though at times, I was getting properties way below market.

I read the interesting discussions in this thread on franchises (Subway franchsies), etc., and beleive me, I looked at all of them. I finally wound up buying an established business (not a franchise), where for two years, I manage to net over $100K/year for myself. Unfortunately, it depended too much on a handful of commercial accounts, and after I lost two of them,afterwards, one year drew out only $25K for myself at which point I decided it might be time for me to sell it. I had a lease renewal coming up in 2 to 3 years, I was paying about $4,600 in base rent plus another $1,000 or so in RE taxes with market rents for a similar location going for over $10,000/month which would have killed me.

Fortunately, the landlord was very sick, and onto his second liver transplant, had no time to fight, and gave my business buyer a lease at only $5,500 month, so I got out on time. The LL since passed away, but commercial rents dropped a bit, so I hope the guy does alright.

I’m pointing all this out to you because renting a premises and running a business is not as simple as it appears, and real estate remains a big part of the equation. However, folks who run businesses, and ALSO OWN the property has something to fall back on. One of my commercial customers, a collision shop closed up, he owned his place free and clear, and put the property up for sale for $1.2 million, with the alternative of a NNN lease for $500K up front, though I don’t know all the terms.


#28

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

Posted by Sailor on August 24, 2011 at 18:38:49:

I think you need to read up on tax planning. I’ve never paid ordinary income tax on a flip.

Tye
www.ShoeboxProject.org


#29

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

Posted by Natalie-VA on August 24, 2011 at 17:41:43:

Beauty is in the eye of the beholder.

I think that owning a franchise it too risky, and you think that flipping is too risky. I have probably bought and sold around 150 houses over the last 12 years and only lost money on two. That’s not so risky to me.

I guess you get more of a comfort level as you get more experience, as with anything else. Many of the properties I purchased were at foreclosure auction where I didn’t get to see the inside before bidding. Again, it becomes almost routine after awhile.

Now if you suggested to me 15 years ago to try that, I would have told you that’s WAY too risky. I would have been wrong and would have missed possibly the only opportunity in my life to enjoy financial freedom.

–Natalie


#30

Re: franchise sandwich shop - Posted by Frank Chin

Posted by Frank Chin on August 28, 2011 at 06:03:31:

John:

I went through the same analysis some years back. I looked into a variety of businesses including Chinese Restaurants, laundromats, and dry cleaners among others.

My dad was a Chinese restaurant manager for a number of years before setting up his own laundry/cleaners business. At one point, my job relocated from NY to NJ and co-workers of mine was complaining about the lack of Chinese restaurants in the area, and I told one guy maybe I talk my dad into opening one with me. My coworker was so excited that he even looked into empty stores on Route 22, NJ.

My dad remarked that I since never cooked, never wanted to, so how on earth am I going to run a Chinese Restaurant. I told him I have an MBA, and I would go hire managers, and perhaps he would like to be the manager of the very first one.

He laughed.

Since pepper steak was my favorite Chinese dish, he asked if I knew how to cook it, and how much beef and peppers goes into each dish. I told him I have no idea, but it’s the job of the manager I’m going to hire to know that.

He said that if I hired someone who can tell right away I don’t know a thing about running a restaurant, and if it was him, he would find some dishonest vendors to do business with, order say 100 lbs of beef, have 50 lbs delivered, and get a cash kickback from the vendor for the difference.

Then, of course I’ll have waiters or dining room managers who won’t be ringing up all the meals, or all the drinks served either. He wanted to know how I would handle that.

So I asked him how he would handle it.

He tells me if it’s very small restaurant, 1 or 2 waiters out front, 3 or 4 people in the kitchen, the owner should do all the purchasing, and make sure everything is delivered. But of course, then it wouldn’t really be absentee.

Or I would hire a “head chef” and a separate dining room manager, and have the kitchen report on how many and what meals are prepared weekly, and the dining room reporting on what was rung up in the dining room. To be foolproof, I have to audit the the figures weekly to see if it compares.

Interestingly, there was a Chinese takeout around the corner where I had my business, and I hear his customers complain that he is open six days, but closed on Sundays. One day, I asked him why.

He explained that he used to open 7 days, managed it 7 days till his daughters became teenagers, and he wanted to be with them Sundays, He hired a Sunday manager. So I said “then what happened”??

He explained that he knew he was doing at least 75 take out orders on Sundays, but when the manager took over, it eventually dropped to 25. Being suspicious, he parked nearby one Sunday, and counted deliveries he can see going out, and on that day, it was almost 100.

That night, he dropped by, and asked the manager how things were. His manager said things were slow, and they only did 25 take out orders. You don’t have to be a genious to figure out he fired the manager.

My dad said if he was starting out in the Chinese restaurant business again, he would find two other partners, and eventually own at least 3 restaurants, with each partner then running one of them. I asked him why 3 restaurants. He explained that with competition, the business can be unstable, sometimes business at one with nosedive if a competitor opens up down the street. And YES, I have seen new restaurants opening up right next door to an existing one.

But he added that the owners can then hire an extra cook or waiter, so if someone quits, and called in sick, they can quickly shift a cook or waiter from one restaurant to another, and not miss a beat.

And NO, after my dad interviewed me, he declined to be a restaurant manager for me, mainly because I knew nothing about it, and because I don’t plan to wait on tables or to cook.

At least that’s my dad thought of my opening restaurants and hiring managers.

If you think about management issues, rentals are far simpler as you know exactly how many tenants you have, how much rent they are paying or not paying, and what repairs are needed.


#31

Lets get to the meat of the matter - Posted by JT-IN

Posted by JT-IN on August 24, 2011 at 23:52:29:

How much money have you made in the restaurant biz…? Any… or None…?

I have a background in restaurants, owned 5 of them; and real estate, owned a few hundred of em. So I think I can speak to both venues quite effectively. There is NO comparison between the two.

The great American dream of the wantabee entrepeneur… having someone else running things and making you tons of money. HOGWASH, it doesn’t work like that in real life.

The REALITY of the entrepeneur / business owner: Work your azz off and make a decent living, re-invest, work your azz off some more, and eventually you get there = Comfortable, maybe even above average income and net worth, but not generally wealthy.

And another point here… your comment: “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.”

To my earlier point… successful business owners don’t just have someone else take care of it for them, they dig their heels in and sweat blood to have a successful operation. You don’t just hand the keys to someone and say send me a check, either with a restaurant or real estate. You do not start a business with a mgr, or invest in RE with a property mgr; you get your hands dirty to the elbows from day one; (so to speak, meaning completely engaged in the biz yourself, not someone else doing it for you). One common trait that I have found in those that wanted to own their own biz, based on this motivation of having someone else do things for you, they become the statistics (of failure).

So based on your comments here, I would say buy a CD, stocks or any other passive investment, but do not invest in a rest or RE… Of course you will anyway, because I believe that you think that you know better than any of us. Again, another common trait of those that fail. Take it all with a grain of salt, as I know you will. Good luck to you.


#32

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

Posted by Natalie-VA on August 24, 2011 at 17:33:10:

high risk = high reward

I would think that most other businesses would have the same tax treatment as flipping. I believe that holding rentals are the exception to the rule, and who knows what will happen to the LTCG rate in the future.

I think it’s just like anything else; different things suit different people. I know that I didn’t have to wait 15 or 30 years to enjoy the benefits of my business, and I don’t get any calls about clogged drains or toilets. And, oh, by the way, there’s a hurricane coming, and the only property I have to worry about right now is the one I live in. That’s a nice change.

–Natalie


#33

Then why are you here? - Posted by Jeanne

Posted by Jeanne on August 24, 2011 at 14:20:29:

John,

This site is called Creative Real Estate Online. We’ve been on the Internet for over 15 years. That says something about real estate investing for everyday people.

I don’t think this is what you are looking for. Plus, I heard it doesn’t work where you live.

Jeanne Ekhaml
Creative Real Estate Online


#34

Businessweek article stats - Posted by JT-IN

Posted by JT-IN on August 25, 2011 at 24:32:20:

25% fail in the first yr, 60% within 3 yrs. Oh, and these numbers are for the time frame when the econ was great; not the enemia of todays economy. I would bet that these numbers would be considerably higher for start ups in todays mkt.

  • the failure rate for franchised restaurants was nearly the same as non-franchised restaurants; actually within 10% of each other.

Would you call that high risk…? You be the judge.

I don’t think you will find these kind of numbers in RE investing, of those that are actually “in business”, not just your casual investor of one, two or three props.

From 2007 to 2009, Quiznos had over 1000 stores close. I wonder what 2010 and ytd 2011 have brought…? This is about 25% of their stores overall. Oops!

The rest of the bizweek article: http://www.businessweek.com/smallbiz/content/apr2007/sb20070416_296932.htm

To my earlier point… a quote from: “David Birch, former head of a research firm specializing in studying small business data, called the “I Had No Idea” syndrome. Would-be entrepreneurs don’t realize what’s truly involved with running a business.”

“Professor Parsa found that reasons other than economic necessity made the owners decide to close. They cited divorce, poor health, and most importantly, an unwillingness to make the immense time commitment necessary as reasons for shutting their doors.”

Source USA Today article 2004 (imagine what those quotes and stats would be in 2011):
http://www.usatoday.com/money/smallbusiness/columnist/abrams/2004-05-06-success_x.htm


#35

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

Posted by brandon on August 24, 2011 at 08:43:18:

Thats $35k a unit. In 20 years if I dont refi to buy another one down the road with equity. To answer your main question though it really doesnt matter when its paid off…its not me paying the debt.


#36

There Will Always Be Doubting ToMmies - Posted by phil fernandez

Posted by phil fernandez on August 23, 2011 at 13:04:19:

However real estate is definitely the way to go. You say you need $5,000 cashflow a month. Why not $20,000 cashflow a month. Just buy a few more rental properties. Screen and manage the properties correctly and you will have cashflow today, tomorrow and well into the future. People need a roof over their head. It’s a necessity.

As others have stated very well here, cashflow is king and isn’t as elusive as ToMmy thinks it is.


#37

Re: Real estate vs. a business - Posted by Chris in FL

Posted by Chris in FL on August 24, 2011 at 24:03:31:

John,

Check out my posts on this sight… I buy a bread and butter house, working class neighborhood, no war zone. Using 7.5 year mortgage, private lender, and buying house in the $20-30K range (including repairs). Average less than $5K my own money, house cash flows at break even or better from day one, and paid for, free and clear, in 7.5 years. Rents for $600-800/month. Might not sound like much… But I am now buy #15 and #16, all starting when I hooked up with my private lender 18 months ago. I started RE investing in 1998, part time. I quit my full time job 5 years ago, when my part time RE was making me more income than my full time job. Now my income is 6 figures, and growing fast!

30 years plan - not today. Today, RE can be a 7.5 year plan, ez!!!

Best wishes,
Chris in FL


#38

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

Posted by arlanj on August 23, 2011 at 11:35:02:

I started in 2003. I now have 36 SF rentals, 2 comercial buildings, & 1 vacation home in the mountains of New Mexico. When the properties that I have currently on the market to sell, I will be down to about $90,000 due the last loan on one of my comercial properties. I should be debt free within 2 years and $13,000 monthly gross rents. Pretty fair deal for a 10 year program.

That will be a decent retirement, even if I dont’t invest more. But why would I stop. Real Estate is the ticket, the fastest way to generate wealth.

Here is the secret. Buy a cheap house with cash. Fix it up and rent it. Use it for callatoral to get a HE loan and buy a couple more. Get them fixed up and rented. Then get a loan on each of them and buy 4 more. Do that until the bank says no more equity loans. Then take your portfolio to another bank and get a line of credit. Buy more. Sell some, buy some, keep adding to the rental pool. Simple as that.

And just think, my entry to real estate started when my mom called me and asked if I was interested in buying a house that her S & L repoed. I was a 44 yrs old and in my 18th year of my accounting profession. I bought it for $2,900. Took about $15,000 to fix it up but it has been rented for the last 5 years at $450/month. It is currently valued at about $40,000. That is a 250% increase in home value plus a 31% annual return. After my 20th year as an accountant, I went full time into RE. Now I just account for my own business.

WOW!!!

I tell this story to alot of people, especially young folks and most tell me - They don’t want to deal with renters and don’t want to work on plumbing. Well it comes with the territory. They never grasp how much money there is to be made.


#39

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

Posted by john on August 24, 2011 at 18:53:05:

Are you serious? If you sell something and make a profit within a year you
have to pay ordinary income taxes on it. So your the reason the
governments broke…PAY YOUR TAXES!!!


#40

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

Posted by john on August 24, 2011 at 18:04:47:

Well said. When your buying and flipping what ROI are you looking for?
Do you have a minimum net margin?