Real estate or business deal?

1 Reply

Investment Info:

Retail buy & hold investment.

Purchase price: $415,000
Cash invested: $55,000

This is a commercial property off an interstate exit with a Subway for a tenant. Subway has been in operation for 17 years.

What made you interested in investing in this type of deal?

I own the Subway, a new Speedway gas station just opened next to me and the interstate is being upgraded to the new Interstate 69 which will increase traffic counts.

How did you find this deal and how did you negotiate it?

The owner of the building was retiring and moving out of state. I kept in contact until she was ready to sell and after several months of negotiation we came to an agreement.

How did you finance this deal?

Local bank - 25 year commercial loan with 5 years fixed.

How did you add value to the deal?

I knew that a Speedway Gas Station was going to be build next to me. I improved the management of the Subway which generated more cash flow and did minor improvement to the property (asphalt refinished, painting the exterior of the building, new lighting).

What was the outcome?

I was paying $3,400 a month as a lease that had 5% bumps every 5 years. I now pay approximately $1,000 a month less and enjoy the benefits of ownership. The increased traffic with the Speedway has increased business and my property value went up about 15% per our recent appraisal allowing me the option of pulling out my initial investment to use for other opportunities.

Lessons learned? Challenges?

Owning the subway is not nearly as important as owning the real estate.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

No

I forgot to mention that one of my key learnings is how you can buy a business and used the cash flow to support buying real estate.  In this case my cash flow from the Subway is about $65,000 a year with a management team in place.  I can use that money for real estate.  An aggressive approach would be to own 3 - 4 Subway (fill in the blank with the business) units which would allow you to have a General Manager AND the Real Estate (say $425,000 per unit).  It would take about 5 - 7 years to get this done but at that point you would have 4 business units worth about 1.2 million along with the commercial real estate for each unit that values around $1.8 million.  In addition you would have around $150,000 a year income to invest in real estate... can you say SNOWBALL?

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