Thank you so much for taking the time to share your perspective—it’s truly appreciated! 🙏☺️ I completely understand where you’re coming from & you’re right that owning real estate is a key step toward truly being an investor.
I’m still new to the game, but I have a solid plan in place to move toward ownership & establish myself as a real estate investor. Posts like this are part of my journey to learn, network & connect with experienced professionals like yourself who have valuable insights to share.
I also want to apologize for the late response—it’s been a busy few days, but I didn’t want to miss the chance to thank you for your input.
Looking forward to learning & growing in this space & who knows, maybe one day I’ll be offering you in on an investment idea or I'll be the one offering advice to new investors!
I co-owned a franchise for 15 years, we paid over $1.3 million in rent. In the end we had to pay to turn the space back in to a white box/shell and closed with basically zero physical assets. Unfortunately almost every franchise involves renting the occupied space when the property would have made more money than the business. We were the ideal customer of a real estate investor.
Ps. The closing of this business is what lead me to “double down” on real estate.
Many of the businesses I sell as a Business Broker lease the real estate. Those that own it can be harder to sell as the cash flow from the business will cover the debt service for the business, but not for the real estate.
Example: I had a very high-end assisted living facility on the market. Net earnings were about $400,000/year, so the business component of the sale was valued at about 3X, or $1.2M. Simple enough - except that he built a million dollar home in a $300,000 market. The real estate appraised at $3.5M. Add that to the $1.2M and we get a total ask of $4.7M.
The $400,000 in earnings could not support that debt service and he was unwilling to lease the real estate to the new buyer. He wanted it all sold as a single package with no owner financing. The sale failed and he still owns it.
One of the potential solutions is to use an SBA 504 loan for the real estate. Where the SBA 7A can be used for all parts of the purchase and is generally Prime+ 2%, 10 years, the 504 (bricks & mortar only) is generally Prime -2%, 25 years. However, many lenders offer only the 7A, so you'll have to shop around.
As to the real estate earning more than the business, that's not something I often see in the current market. In the last two days, I met with two business sellers who have net profits of $580,000 and $600,000 per year respectively. Just as an aside, both plan to keep their owned real estate and lease it to the business buyer.
I like that because it makes the business much easier to sell.