Investment Question: Please help

[nethgerona]

Hi there. I wish someone could help me decide whether to invest a property or buy a franchise as my first investment. Thanks.

[james.hendrickson]

Whats your risk profile?

How much capital do you have?

What are you interested in or passionate about?

What are your goals?

[bjl584]

First, you should invest in yourself. Learn as much as you can about different types of investments and businesses. Find one that you are passionate about and has good potential for success.

[nethgerona]

Investment Question: Please help

I have approximately $25,000 in my savings account which is allotted for the downpayment in the property I'm interested to purchase. The selling price is about $400000. However, I am thinking of venturing into a low-cost franchising business before finally purchasing a property.

I already made a marketing survey in the location where I intend to put up the business. It shows that there are very few restaurants or fast foods near the area. A plus factor is that it is just beside a school campus, students are preferably my target market. However, for about a decade now I've been living in an apartment and still don't have a property of my own. As of now I still can't decide whether to push through investing a property or business instead.

[bjl584]

I have approximately $25,000 in my savings account which is allotted for the downpayment in the property I'm interested to purchase. The selling price is about $400000. However, I am thinking of venturing into a low-cost franchising business before finally purchasing a property.

I already made a marketing survey in the location where I intend to put up the business. It shows that there are very few restaurants or fast foods near the area. A plus factor is that it is just beside a school campus, students are preferably my target market. However, for about a decade now I've been living in an apartment and still don't have a property of my own. As of now I still can't decide whether to push through investing a property or business instead.

Are you in a position where you can run a franchise? It's most likely going to be long hours 7 days a week, at least in the beginning. Buying a rental will eat up a lot less of your time. Just something to consider.

Also, if you go the property route, you're going to need at least 25% down. You either need to save more, get creative with financing, and/or find business partners.

[disneysteve]

Buying a rental property and opening a fast food restaurant are two dramatically different things.

I think you need to give a lot of thought to what sort of business you want to be in, how much time and effort you want to devote to it, whether you'd prefer something where you pretty much work alone or if you want to be a boss hiring and training staff, etc.

What sort of work do you do currently?

[TexasHusker]

Your potential return on investment in a franchise is a multiple higher than any property you are going to buy, as is your risk.

My annual ROI in francishing is as high as 80% depending on the unit.

[nethgerona]

Re:Investment Question: Please help

80% ROI is very impressive. About the info you've shared, I think I'm getting more interested with franchising business. Could you share some and advice and experience about this business you have? I believe that would be very helpful for me if I would pursue venturing into this business. Thanks a lot.

[TexasHusker]

80% ROI is very impressive. About the info you've shared, I think I'm getting more interested with franchising business. Could you share some and advice and experience about this business you have? I believe that would be very helpful for me if I would pursue venturing into this business. Thanks a lot.

There are thousands of franchise opportunities. You have to find the one that suits your skill set and budget.

With franchises, you have to learn to be dumb. Meaning that you do things - everything - the way that the franchisor requires. And I mean EVERYTHING.
If you want to do things your own way, a franchise isn’t a good way to do.

I have three locations. Each location takes around $140K to open.

One of them is trending at $25K a year,
One of them produces about $80K a year,
One of them produces around $115 a year.

I will likely open a fourth location in the next 18 months.

The downside to a franchise is that the sum of the value of the business is in the business volume and efficient management. So there is no hard asset underlying.

That’s a problem when you want to sell, as 3X earnings is about as much as you’re going to get. That said, I wouldn’t sell mine for 5X earnings, as that is income that I would have to turn right around and replace. Not many investments pay a 20% dividend.

[Gailete]

Hi there. I wish someone could help me decide whether to invest a property or buy a franchise as my first investment. Thanks.

Why are these your only options? Both are very high cost financially for a first investment. You said you have around $25K in savings. Is that all you have? Or do you also have a retirement fund on the go, an emergency fund? What do you do for your 'regular' job? Will it allow you the time to deal with a franchise or a property that will need maintenance? $400000 is a HUGE amount to be considering when you only have $25K to work with.

How much studying have you done about the ins and outs of these two investments areas? Not the books that shout out at you "How I made $3 Million with a franchise!" Or "How I made $3 Million with real estate!" You need the perhaps boring books on real estate rules in your state, financing real estate, rules for being a landlord in your state, any franchise you may be interested in you will need their information for potential owners, basic business accounting. You would most likely need an accountant, but knowing basic accountant helps you understand what a CPA is saying and what kinds of things you need to track for business expenses.

I think before you make any decisions about what to do, you need to get more advice and learn a whole lot more. Also, you must know what you might be interested in buying into. If you hate cleaning, then buying into a franchise that cleans carpets will be a slow death to you as you get your business off the ground. I have no clue what a franchise would cost as they are all dependent on so many variables, but I would guess, that not only do you buy into a license you still have to finance the equipment, building, etc. You will need a source of income or living expenses while building up a business until you get to the point (if it does) to support you. I am sure the franchise will want its monthly share every month whether you have money for groceries and rent or not. Don't forget most of these places will paint everything with a rose-colored paintbrush. You must be on the ball enough to know when someone is lying to you.

[nethgerona]

re: Investment Question: Please help

There are thousands of franchise opportunities. You have to find the one that suits your skill set and budget.

With franchises, you have to learn to be dumb. Meaning that you do things - everything - the way that the franchisor requires. And I mean EVERYTHING.
If you want to do things your own way, a franchise isn’t a good way to do.

I have three locations. Each location takes around $140K to open.

One of them is trending at $25K a year,
One of them produces about $80K a year,
One of them produces around $115 a year.

I will likely open a fourth location in the next 18 months.

The downside to a franchise is that the sum of the value of the business is in the business volume and efficient management. So there is no hard asset underlying.

That’s a problem when you want to sell, as 3X earnings is about as much as you’re going to get. That said, I wouldn’t sell mine for 5X earnings, as that is income that I would have to turn right around and replace. Not many investments pay a 20% dividend.

Well, I'll try to consider those options. Maybe I just need more time to start my business. Thanks a lot for the advice.

[disneysteve]

With franchises, you have to learn to be dumb. Meaning that you do things - everything - the way that the franchisor requires. And I mean EVERYTHING.
If you want to do things your own way, a franchise isn’t a good way to do.

I love how you stated that and it is so true. And that isn't a bad thing. It's just a fact.

I actually had a similar experience when I switched from private practice to working for a hospital-owned chain of urgent care centers. There are guidelines and protocols for everything we do. In my office, I could do things however I wanted. Now, the intent is for everyone to do things the same way so that we are providing a uniform patient experience no matter which site they go to or which provider they see. And again, that isn't a bad thing. It's just very different than being independent.

[TexasHusker]

I love how you stated that and it is so true. And that isn't a bad thing. It's just a fact.

I actually had a similar experience when I switched from private practice to working for a hospital-owned chain of urgent care centers. There are guidelines and protocols for everything we do. In my office, I could do things however I wanted. Now, the intent is for everyone to do things the same way so that we are providing a uniform patient experience no matter which site they go to or which provider they see. And again, that isn't a bad thing. It's just very different than being independent.

Yes, consistency in service is the name of the game.

Franchises want customers to trust the brand, not the franchisee. So whether you go to Pizza Hut in London, KY, or London, UK, you can expect for the pizza to taste precisely the same.

If a franchisee begins deviating from the rule book, bad things tend to happen.

We have a business services rep come to town twice a year to make certain everything is "by the book". She always finds things that are not, and you'd best fix them before her next visit.

I always get a kick when people say "isn't it NICE to be your own BOSS?" Hahaha!!! Quite the opposite actually - I have more bosses now than ever! Customers, employees, landlords, banks, accountants, the IRS, and lawyers.

[disneysteve]

Yes, consistency in service is the name of the game.

Franchises want customers to trust the brand, not the franchisee. So whether you go to Pizza Hut in London, KY, or London, UK, you can expect for the pizza to taste precisely the same.

Exactly. Imagine what would happen if every time you went to a different McDonald's location the food was different. The whole reason people like chain restaurants is that they know going in what to expect. There shouldn't be any big surprises. The place should look and feel familiar and the food should taste like it does at every other location of that chain.

I'm sure the same is true in the hair business. Similar design to the sites. Using similar products. There is a uniformity from site to site.

[Gailete]

I loved going to Pizza Hut for years and it was as you guys said consistent. Then a couple of years ago my son and I went into our regular Pizza Hut were we had gone for years. I wanted to take a pizza home and son and I would eat one there. So time to pack up and I asked for a box. Out the waitress comes with a bunch of those tiny boxes that could maybe hold 2 pieces. I was like where is the big box. "Oh we can't give you that kind", when i ask why I get told it is the rules. Now I had been going to this PH since 1977 and this was aorund 2015 or so. I had always gotten a big box to take home extra pizza and she flat out refused telling me she could get fired if caught giving me a big box! That was the end of my going to PH for a year. I got really hungry fpr one of those pizzas so I try again. The pizza comes to our table and all the dough is gathered up in ripples around the edge of the pan (pan pizza) and the dough in the center of the pan, I'm not sure if it was even 1/8" thick. I told the waitress that there was something wrong with the pizza. She looks at and says what, looks like all the pizzas we make. When I point out the defects, she still repeated nothing was wrong with it and then quoted how long she had been working there. Yet again I doubt if she was even born the first time I went to one! I asked to see the manager and she said she was the manager! Okay a manager that has no clue whatsoever about how a pizza should look like. A pan pizza certainly shouldnet have that thin of dough in the middle and it was soggy and not even baked. I have been making homemade bread for close to 50 years now and I know dough that is baked or not. At that point, I said that was it for me I won't be back. And I haven't been. Do I miss their pizza, sure do, but I don't trust their quality control enough to walk into one of their restuarants. They lost a customer and the money I would pay there.

That is what happens when a franchise owner neglects to follow the rulebook! Here is another. You lose business and customers. Years ago we got some restuarant Called McBeths Ribs or something like that. I like spare ribs so we tried it. all I found on my plate was bones, fat and sauce. "Where's the Beef/Pork?" was in my mind. So since they were still in their newly opened phase the manager comes over to find out how we liked it. I told him I didn't as I got NO meat at all. Well how did you like the sauce? You have got to be kidding. I don't go to a restauarant to eat BBQ sauce with a fork. I repeated to him again that I got no meat. The rest of the table hadn't either. A few months later, the place was closed and out of business. You can't fake people out with bones, fat, and suace and make them think you are feeding them ribs! That franchise bit the dust bad. The had built the store from scratch, it closed withing 2-3 months, I doubt that the had a single repeat customer. Eventually the building was bulldozed down and turned into a Putt Putt place. One very expensive mistake for that franchise owner.

I've gone into other businesses that gave abyssmal service and within months they were closed. I didn't put a curse on them, but I did mention what frightful service I got to others. I suspect the reason that they ended up closing is their employees no longer cared and it became the general theme of the place. I remember asking an employee a question about their special order kitchen cabinets and she waved over to another direction and told me the cheap ones were over there. Wouldn't even get up off her bottom as it was 15 minutes until closing, but she had already 'checked out'. All I wanted was some of the brochures to study at home of the more custom cabinets. Another store got my very big kitchen cabiness remodeling money. Not that store. Now out of business.

Buying a franchise is no guarantee of success in the least.