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Looks like a 5.5% return on your cash with 3% increases in the rent every year. 5 years left on the lease and would be about $1,000 cash flow positive with 25% down. It's in a high foot traffic area in downtown chicago. About 1600 square feet. Would you do the deal?
Restaurants are nightmares. People calling out, hiring, food safety and waste. You should analyze the franchise contract, expenses and potential income more in depth before buying it. It may even be cheaper to open up a new one down the street.
PS. My mutual funds make about 8% and I don't even have to lift a finger. Opening a DD sounds like an expensive and hard way to make 5.5% return.
To me, that would be a rather poor return on investment, plus there are so many negatives to being bogged down with owning a commercial building such as that--where you are really at the mercy of the tenant come lease-renewal time. It is definitely not an easy property to sell if you ever decide to switch into something else.
The ideal time to SELL such a property, however, is when there are a few years left on the lease and the tenant appears financially able to fulfill the lease terms. Who knows what will happen later? It's too much risk for too little return--plus it's far too much headache...at least for me.
I'd still favor stocks at the moment...but for real estate investments I'd look at distressed properties--although a much better time was a couple years ago. There still are some properties out there--foreclosures, tax sales, etc.--but it's getting harder to find some clear winners. Still, the upside on some of these properties is much more enticing than a paltry 5.5% return. That's not a bad return for a stock dividend, but for a property you're locked into and can't liquidate immediately--no way.
If you are asking about buying a building that is currently leased to a donut store in Chicago the real questions I would be considering involve alternative uses for a 1600 sq ft space. It is not like Starbucks is expanding, Caribou is pulling out of some locations. Franchises in general have finite life spans...
Now if you are considering buying a donut store the above is even more important to consider -- can you sell this franchise to the next sucker when you realize it is not the license to print money the franchise seller says it is?
Your figures are suggesting that you can do this deal for a couple hundred grand. Something doesn't make sense....building, plus franchise/business.....please give us a few money details. Thx,
I think I'd like a Boston Cream donut, but I won't stop and get one because I have concern for my weight and health.
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