Real estate investing vs. buying a business (2013, income tax, mortgage)

[jamies]

Originally Posted by KCfromNC

If the rent is $100K a year how much cash do you need to buy the building outright? Several million? That's not a great rate of return compared to the risk.

Yes, that particular building with the sandwich shop I mentioned is on the Pacific Coast Highway in SoCal - it is probably worth several million.

BUT, my point is a good sandwich shop doesn't have to be located in Santa Monica to make really good money.

I want to find a location in some city where prices are AFFORDABLE but business is good.

Along the line of having dreams crushed - any idea what the average building for a fast food restraunt or a conveneince store/gas station costs? Roughly 3.5 million, almost anywhere.

But I have a 2nd home in a resort town of about 42,000 - there is an auto shop on a side road nearby run by a mexican fellow. He started out working from a storage unit, Now he's got a shop with 4 bays several employees, and cars stacked down the street. Because he does a good cheap honest job. He waves at people he knows when you drive by, and if you want air or your fluids checked, just pull in anytime and they do it for free. So where are you going to take your car when it breaks?

[Carla Hailey]

Originally Posted by midlifeman

I like the idea, but what are some types of businesses other than retail/restaurant that have quicker returns on investment?

Stocks, gold, tax lien certificates, silver.

[jamies]

Some more comments on MrRational and Daves comments -

As one of my businesses, I would LOVE to open a deli/sandwich shop - in the right location, time and town. I'm "sure" it would work, I've got it all "figured out" down to menus, etc. I know the business (sort of...) And if I owned the building free and clear I think it's got a chance.

But the beauty is if it failed, so long as I own the building, I can always try a convenience store, or the way things are going in many states open a "medical" dope shop... LOL

I agree with having "multiple streams of income" - my SO has a job, is a contract programmer / scientist. We own rental properties. I used to flip houses. I'm too old and crotchety to work for someone else and I like to boss people around. So I figure I should run some businesses - essentially buy myself a job.

Maybe I could start charging you guys for advice...

[MrRational]

Originally Posted by jamies

As one of my businesses, I would LOVE to...
in the right location, time and town...
I'm "sure" it would work...
I've got it all "figured out"...
And if I owned the building free and clear...

Maybe I could start charging you guys for advice...

you sound like a friend of my son.
the one I try to steer him clear of.

[noexcuseforignorance]

Just invest in stock. You're getting 7% ROR but I doubt you're really calculating long term costs into that. A sandwich shop? How much time do you have on your hands? Do you even have enough experience and money for them to consider you? How much time do you have to give? Did you know franchisers commonly cap your earnings? Do you really want to be making sandwiches?

The stock market in the long run provides a great return and it gives you free time to do other things. Not sure why people focus so much on real estate investments.

[Carla Hailey]

I agree with your ideal thoughts, somehow revenue stable employment and benefits may vary.

[Zyngawf]

Originally Posted by midlifeman

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?

Real estate investments should be bought and sold quickly or the risk is too much. I think the sandwich idea might be better.

[Susannea]

I would honestly go the route of a dollar store or something like a party store I always see those doing well.

[TVosicky]

I was reading in the NY Times about the stock prices for huge dollar store chains like DOllar Tree, Family Dollar and 99 Cents Only. They used this quote that stuck with me; "We are now living in the Dollar Store economy." During the huge recession in 2008 they were about the only stock performing well. If you look at thtat as evidence of a business model that does well in a struggling economy you can imagine that since we are still in a weak and getting weaker economy it would be smart to pick a business that does well in those circumstances.

My sister lives in a small town in Montana and is opening up her own dollar store there and I think it is a really good idea. I'm thinking of doing the same thing and moving back to Montana as well. She went through this company called Dollar Store Services and they did everything for her - got a location, financed her, trained her and she is opening up in January of February depending on when the building is finished. It is pretty exciting and I thought I'd share since this seems to be a recession proof type of business.

There was this other article I just got from my sister that talks about how dollar stores are becoming "the new normal" in a prolonged recession. That sounds depressing if you are on the end where yo uhave to shop at a dollar store, but for my sister and myself that sounds cool because you would be the person selling all the goods. This is a really great article that proves my point I think. Either way good luck with whatever decision you make.

http://www.americanbankingnews.com/2...n+Banking+News)

[oregonwoodsmoke]

Finding a small business for a purchase price that allows you to earn a decent return is about as likely as finding a 3 carat diamond ring in a pig pen.

I've been looking at small businesses for decades and have yet to see one worth buying. Return is always pretty marginal and then you start looking and discover that the listing agent neglected to add in 2/3 of the expenses when he figured the cap rate.

Business start ups cost a lot of money and have a huge failure rate. Most franchises are losers, or else they are extremely expensive to purchase. Look around and see how many franchises are still going strong 20-30 years later (not the parent company, the individual franchises they have sold). Not many of them.