QUOTE (thomasbeyer2000 @ Feb 15 2009, 08:26 AM) the MAIN difference is a piece of real estate
a) can be FINANCED easier and cheaper, especially an apartment building as it can be CMHC insured, ie. the cost of money is lower or MUCH lower (i.e. most franchise owners pay cash or get a loan secured against other assets, as a loan-to-value for a new franchise is tough to establish, maybe you get 30% on physical assets such as restaurant equipment at prime + 6%, i.e. a 9% interest rate, vs. a CMHC loan is around 3.5% to 4% today .. 50% cheaper !!)
b) can be SOLD easier / cheaper, i.e. is more liquid
c) has more "freedom", i.e. there is no dependency on a franchisor which may require you to invest, may change its % of fee or may not live up to its promises re national advertising, branding etc. ..
d) is more expensive to build, i.e. replacement costs re higher than purchased price,
e) is a lot less depending on the owner, location, "luck", the economy, the competition etc. ..
f) is a physical asset that is harder to clone, so the 1st "Starbucks or McDonald`s or Shell gas station or .." might do OK in a city, and the 2nd too .. but perhaps the 35th (yours) might not do so well due to saturation .. i.e. related to point d) "cloning" is harder to do in a physical piece of real estate
g) is less designed to buy a job, whereas many franchises are just that: you buy yourself a job, i.e. income is the focus not equity
Given these advantages of real estate, often the yield is much higher on a franchise to compensate for these 7 main dis-advantages !
I would say that a franchise yield, net after counting a wage for yourself or the general manager, needs to be about 15-25% (i.e. a P/E of 4 to 7), whereas real estate usually is 5-10% yield (or CAP rate) only. In many instances those high yields are not achievable in a franchise .. but if they are then they are certainly worth a consideration !
Consider giving
FranNet a call to discuss your specific needs to match you up with a potential fit.
It seems like its a question of personal choice, where you feel more comfortable and your immediate needs.
Buying a business might suit the needs of someone who needs to create a job, because it will focus on generating income.
If you rely on income from cash flow properties to feed yourself, an unexpected expense could take your weekly salary, in that case diversification is key. (like you said, focused on equity building)
I would suggest that rental properties, unless you can work out a decent cash fow through a volume of purchases, isnt the most reliable source of steady income. Not to say it cant be done, just not in as short of a period compared to a business.
I was asking because one of my investing partners is debating investing full time in real estate, but is worried because he doesnt have another job.
We are trying to create a job investing full time in real estate.
