What about buying into a franchise ? Pay them $300,000 they give you a complete turnkey establishment in a A realestate location.Does anyone have any experiences to share ?
Depends on the franchise. I developed one back in the mid 90s. Not all are “turn-key”. You will be responsible for purchasing equipment and sometimes furniture and fixtures from approved suppliers.
-Anthony
Hello campbellgroup,
A business like a franchise will have a certain economic life as an appreciating asset. Since most are set up in specific territories, they will grow to a certain point and then flatten out. Especially such businesses like a fitness gym that targets a certain maximum membership and once reached, only is afforded growth by marketing additional services to the membership or increasing dues. Increasing the dues is a very limited way to increase growth as usually you will be increasing dues to cover rising costs of operation at this point of the businesses development. After the business revenues flatten, it stops appreciating. It still retains economic life as an income source though.
As an investor, we like things that offer both an appreciating asset and an increasing income flow. Restaurant franchises, UPS stores, 7-11’s, Cold Stone Creameries, Starbucks, etc. will all have a customer base that is easy to increase in its early stages but slowly flattens as it becomes aged and reaches maximum market share. If the franchise owners do not own the real property, they are open to increased costs (utilities, rents, supplies) but not necessary a growing revenue base or asset base to keep the value level. Of course this is more prevelant with businesses as they get closer to their maximum growth potential.
We have invested in a few when there was a sound piece of real estate in the mix. With a good piece of commercial real estate attached, you will have the appreciating asset to offset the flattened revenues when a business hits its maximum growth. If the real estate is the right property, the increasing value of the real property can offset any growth stagnation of the buisness. Once a business stops growing, so does its value. But, most turnkey offers come with a rented location, not an owned location so usually you are looking at a business without a real property attached.
But a good franchise in the right place may have a long cycle of growth before it maximizes its market share. I would rather be at the front end of this type of business development than the back end. If it is the right product at the right time in the right market, the highest increase in value in the shortest time will be in the beginning of the business’s development and not on the back end.
When we invested, we looked for our out after the business was established and in a strong growth phase but has not grown past the point that the potential for significant increase in the value of the business had passes. We targeted sometime in the second year for our investment to be bought out. When we did invest in them, out interest was never based on holding them over the long term.
JAAMJK,
A world of insite :DThank you .We have weighed the options and I think we are going to continue on our residential buy fix hold/sell path.The old “stick with what you know thing”