What kind of business?

[theGman]

OK. I hope this is not seriously off-topic.

 

I am building my credit back to 720 and have sufficient resources. As I was considering getting a 4plex, I am also wondering if it might not be better to buy a laundromat or a franchise (subway, 7-11) or a laundromat?

 

I have googled all night and found forums dedicated to each area but no place that compares these types of investments. I was hoping that one of you may be able to point to the right forum, person, book, whatever?


Thank you!

[stroked89coupe]

I think the main question if the funds are no issue is how involved do you want to be with this investment. It will be a long time before you can leave the store and it run by itself.

[jmight]

The only way to really compare them is to run the numbers based on the market that your in and like Stroked said, figure out how involved you want to be.

 

If your not familiar with the line of business, I would also suggest going and working in it for a bit so you can learn at someone else's expense. (For example, I know one too many doctors who thought they could run a restaurant only to end up in bankruptcy because they had no experience in the business.)

[theGman]

thank you both. point taken. i have to learn no matter which way i go.

 

what if we were looking purely from the numbers perspective? from what i know, and there's a lot to learn, the real estate option seems better only because it seems more passive and safe while generating cash returns. franchises seem like a rip off with their 10% annual take of gross revenue. and, laundromats when bought with the real estate could make sense although perhaps limited in how much you can grow. i think the advantage in buying a business maybe a 2nd note that the seller carries making it more leveraged and increasing the cash on cash return (assuming that the price is right too and therefore a good return on investment).

[stroked89coupe]

Are you talking about renting this building. I may be biased, but that is something I have always wanted to do. I would say in my own opinion that would be the route I would take. I own a service based business now, And while it is far different than retail, It is similar to some retail businesses as far as slow periods throughout the year. If you were having to deal with employees on top of the normal franchise stuff I imagine that would be stressfull to say the least.

 

 

There are some upsides to franchises, And down sides. If you go the resturant route, I think that opening up a franchise would be the best bet versus trying to open up a brand new (not well known) resturant all out of pocket and simply hoping for the best.

[theGman]

ya. i am looking at either purchasing property (4plex) for renting it out or getting a laundromat or a franchise (7-11 or subway). All of these seem like they are not too hard to learn and also not too risky.

 

for any of them, i think if one can buy at a discount, know how to improve its value, and get a second note at a favorable interest, then those are three ways to profit. overall, i think maybe a business will let out more cash year to year but a 4plex will build more equity. over a ten year period, the real estate might be safer because changes in business conditions can maybe happen faster.

 

so much thinking. i wish there were some easy rule of thumb to figure it out.

Edited April 16, 2013 by theGman

[BRBiz]

Restaurants in general are a tough industry and are risky.. A franchise like Subway is easier then most but still a lot of work and having experience in the restaurant industry is key to being successful. A retail store is a step down from a restaurant but still a lot of work.

A laundromat can be a excellent business to start if you have the capital. Finding a good location for it is key and after that it can almost run it self requiring minimal work. Being a landlord is similar but you just want to make sure you learn the laws in your area regarding renting out properties.

 

You need to figure out how much time you want to invest, what interest's you and what are the hot trends in your area. Some franchises have requirements that that you work within the industry or even exact business for a certain amount of time ranging from weeks to years so keep that in mind. Franchises are great because they can set up for success from the beginning and provide support and resources but can they can also hamper your growth and success by limiting what you can and can't do within your business.

 

I will add Subway is a great franchise to open and when done right can make you a lot of money but I have seen a lot of them also shut down because they were not run properly due to lack of experience. It's more then just throwing some subs together.

Edited April 16, 2013 by Brndnh721

[jmight]

Laundromats can actually be started with *almost* next to no capital, there are many companies that basically "rent" the machines - they split the income from them 50/50 and handle all the maintenance. I have a friend in Ohio who does this, doesn't have a soul working for him, though he does have an agreement with the gas station that's next door to provide change/refunds if the machines eat the money. Definitely all about location... and of course setting up the electrical and plumbing to handle the machines.

 

If you decide on a restaurant - expect to spend a LOT of your time working the first few years. The build out is also very costly, for example my last job's budget for getting the electrical, plumbing, flooring, tables, chairs, all the equipment was well north of $150k (300 seat capacity; 5000 sq ft of dining space...) And that didn't include the food, beverages, money for payroll, licenses, etc. (There's an old joke in the industry -> Q: How you do create a small fortune in the restaurant industry? A: Start with a larger fortune.) However, if you know what you are doing (or in the case of franchising follow their guidance) it can be really rewarding experience. This is definitely not an industry to go into though without experience.

 

Rental property (especially multi-unit properties) can be a pretty nice investment - but again you have to decide if you are going to manage it or hire a real estate firm to do it (7 to 10% of the rent will go to them). If you decide to manage it yourself, be sure to stay on top of laws - some places you have to replace the carpet if the person lives there for 30 days for instance, which can be costly if you have high turnover.

How much time do you want to spend working each day? Is probably the best place to start on making your decision.

[stroked89coupe]

Laundromats can actually be started with *almost* next to no capital, there are many companies that basically "rent" the machines - they split the income from them 50/50 and handle all the maintenance. I have a friend in Ohio who does this, doesn't have a soul working for him, though he does have an agreement with the gas station that's next door to provide change/refunds if the machines eat the money. Definitely all about location... and of course setting up the electrical and plumbing to handle the machines.

 

If you decide on a restaurant - expect to spend a LOT of your time working the first few years. The build out is also very costly, for example my last job's budget for getting the electrical, plumbing, flooring, tables, chairs, all the equipment was well north of $150k (300 seat capacity; 5000 sq ft of dining space...) And that didn't include the food, beverages, money for payroll, licenses, etc. (There's an old joke in the industry -> Q: How you do create a small fortune in the restaurant industry? A: Start with a larger fortune.) However, if you know what you are doing (or in the case of franchising follow their guidance) it can be really rewarding experience. This is definitely not an industry to go into though without experience.

 

Rental property (especially multi-unit properties) can be a pretty nice investment - but again you have to decide if you are going to manage it or hire a real estate firm to do it (7 to 10% of the rent will go to them). If you decide to manage it yourself, be sure to stay on top of laws - some places you have to replace the carpet if the person lives there for 30 days for instance, which can be costly if you have high turnover.

 

How much time do you want to spend working each day? Is probably the best place to start on making your decision.

 

 

Very Good Post!!

[jmight]

 

Laundromats can actually be started with *almost* next to no capital, there are many companies that basically "rent" the machines - they split the income from them 50/50 and handle all the maintenance. I have a friend in Ohio who does this, doesn't have a soul working for him, though he does have an agreement with the gas station that's next door to provide change/refunds if the machines eat the money. Definitely all about location... and of course setting up the electrical and plumbing to handle the machines.

 

If you decide on a restaurant - expect to spend a LOT of your time working the first few years. The build out is also very costly, for example my last job's budget for getting the electrical, plumbing, flooring, tables, chairs, all the equipment was well north of $150k (300 seat capacity; 5000 sq ft of dining space...) And that didn't include the food, beverages, money for payroll, licenses, etc. (There's an old joke in the industry -> Q: How you do create a small fortune in the restaurant industry? A: Start with a larger fortune.) However, if you know what you are doing (or in the case of franchising follow their guidance) it can be really rewarding experience. This is definitely not an industry to go into though without experience.

 

Rental property (especially multi-unit properties) can be a pretty nice investment - but again you have to decide if you are going to manage it or hire a real estate firm to do it (7 to 10% of the rent will go to them). If you decide to manage it yourself, be sure to stay on top of laws - some places you have to replace the carpet if the person lives there for 30 days for instance, which can be costly if you have high turnover.

 

How much time do you want to spend working each day? Is probably the best place to start on making your decision.

 

 

Very Good Post!!

 

:-) Thanks.

 

OP: You may also want to look at existing businesses for sale, which is a great way to get your hands on some hard numbers. There are plenty of business brokers you can talk to that can help you secure financials for those businesses - whether you use them to purchase or just to get an idea of which has the best margins... Also with existing businesses it can be easier to get financing (same with franchises) just because there is the history the banks can look at instead of just a plan (ymmv).

 

You might also consider commercial real estate - there are a lot of companies looking to do sale-and-leaseback arrangements which can provide a nice passive income stream if structured properly.

 

Food for thought.

[ArchonInitiative]

Remember that with franchises, you are obligated to cede much of your decision-making power to the franchisor. There are some times when you can choose not to participate in certain promotions, etc., but in general, you are toeing the line. For some, that is a PERFECT situation. For others, it could prove to be very annoying. Every franchise, restaurant or otherwise, has horror stories from franchisees. Due diligence is a must. Find out what you can expect.

Edited April 16, 2013 by ArchonInitiative

[theGman]

thank you, all! very much.

 

all the searching led me to a online discussion (not sure i can post a thread from another forum on this one). anyway, some combination of a good cap rate and cash on cash return allows one to get into a good investment in real estate. and these good investments are not necessarily the pretty looking or new buildings either.

 

when it comes to restaurants, i don't have the guts for it. haha. i would try a franchise like a Subway but good information like this forum seems hard to come by. i called a couple of business brokers but he was all about me qualifying and being "serious" about a particular business for sale. i think too many people must call them. so a good discussion on what price to pay and what to expect from different opportunity types would be a great read.

 

i want to have low involvement which i think is hard to find as well. the reason is i am working on another project which is cash-less for a year to 18 months. if that one works, it will be an incredible thing and i would want to spend more time on that.

 

i like the idea of partner/leasing the machines as that is low risk up front. maybe these machine sellers have some idea of locations too. so i will give them a call.

 

i suppose i need to sit down and make a worksheet where i can come up with one number to compare each type of opportunity. and that worksheet needs to include my time involvement in addition to the cash on cash return and the cap rate and so on. (i believe small business sell for 2.5 Earnings before taxes interest depreciation and amortization (EBITDA).

Edited April 17, 2013 by theGman

[BRBiz]

thank you, all! very much.

 

all the searching led me to a online discussion (not sure i can post a thread from another forum on this one). anyway, some combination of a good cap rate and cash on cash return allows one to get into a good investment in real estate. and these good investments are not necessarily the pretty looking or new buildings either.

 

when it comes to restaurants, i don't have the guts for it. haha. i would try a franchise like a Subway but good information like this forum seems hard to come by. i called a couple of business brokers but he was all about me qualifying and being "serious" about a particular business for sale. i think too many people must call them. so a good discussion on what price to pay and what to expect from different opportunity types would be a great read.

 

i want to have low involvement which i think is hard to find as well. the reason is i am working on another project which is cash-less for a year to 18 months. if that one works, it will be an incredible thing and i would want to spend more time on that.

 

i like the idea of partner/leasing the machines as that is low risk up front. maybe these machine sellers have some idea of locations too. so i will give them a call.

 

i suppose i need to sit down and make a worksheet where i can come up with one number to compare each type of opportunity. and that worksheet needs to include my time involvement in addition to the cash on cash return and the cap rate and so on. (i believe small business sell for 2.5 Earnings before taxes interest depreciation and amortization (EBITDA).

That's about the average market rate although over the years people have been selling for far less. You should have left EBITDA abbreviated to see how many knew want it stood for just for fun of course!

 

Any business you could be hands off just need to pay some one to run it!

Edited April 17, 2013 by Brndnh721

[theGman]

ya, the thing of being hands off is that it eats too much of the margin unless you buy (and can afford) a much bigger business and the manager expense is not felt so much.

[BRBiz]

Yes exactly.. My wife and I do restaurant consulting part time and often have people ask about starting a restaurant with no experience and as I said earlier its a tough industry and you really need some experience or your going to fail. So people will say well I can just hire a manager to run the business. Sure you can but your not going to make much money to live off of especially just starting out. The profit margins in a restaurant can range from 2% to about 8% depending upon the restaurant.

 

A bar actually isn't a bad business since you have more profit in it and you don't need a ton of experience to open one. It's all about location, crowd and appeal. It does carry a lot of liabilty and obtaining a liquor license can be difficult in certain areas. A nightclub is a huge money maker when done properly.

[jmight]

I would contact a commercial real estate agent to find a location for laundromat; the people who rent the machines may know of businesses that are looking to cash out, however a commercial real estate agent will know more about the demographics of the area and be better suited towards helping you find a location - and help negotiate a more favorable lease.

 

If you haven't worked in restaurant/bar/nightclubs I would just say to stay away from them - too many a fool has gone bankrupt thinking they could just open one and go live in paradise somewhere collecting a check. Being absentee, its much more likely that you'll be robbed blind. (That's pretty much true of most absentee owner business though.)

 

I'm in the process of doing exactly what you are (except I'm debating between a bar, a restaurant, or a liquor store [back in my home state where they are limited by the population in the town and you can't get liquor anywhere else nor can you get beer/wine anywhere else except the grocery store]). The liquor store is my low involvement option, and the one I most favor just because its where I started my work life.

 

When I make my comparisons, I value my time at minimum wage and consider it part of the cash outlay I'd make to get started. Then I compare ROI vs Initial Investment vs Amount of my time I'd be working. Makes it easier to decide which direction to go.