It has been a while since I have purchased my first property and now that I have accumulated some capital once more, I am plotting my next move.
Initially, I had thought that the idea of purchasing a second property was a great idea. I went to the bank in the past couple of weeks to see if I would qualify for a second mortgage and to get the amount I was able to loan.
The good news was that it was more than I expected.
However, after the whole pre-construction fiasco, I am exploring the options of buying a business instead.
What you’ll learn in this post
- Are businesses better investments than real estate.
- Franchises may be better than a private business for first time owners.
- How to leverage money to fund a business.
Business vs real estate: What’s the difference?
Although both a business and a property have the potential to generate passive income, getting to that point will differ.
For properties, there will be less work involved. You would need to do is to purchase a good property, find tenants and maintain it.
Trust me, it does not sound as simple as I make it.
As for a business, well that would depend on the level of establishment you are looking to acquire.
Depending on where the stage of the business is at, you may need to put more effort in setting it up before the passive income starts coming in.
Ultimately, both of these investments do have the potential to bring in excellent passive income. There is no clear cut answer to which of these are better. There are simply too many variables at play.
At the end of the day, passive income should be the priority.
Should I invest in a franchise?
Over the last week, I have been meeting with a business brokerage to look at some listings for sale.
We went over the financial statements of multiple private businesses and quite a few franchise.
Personally, I am interested in the fast food industry.
I feel much more comfortable buying a franchise because they have a proven business model and support from the company.
As I don’t have much experience running a business just yet, I believe that a franchise would be a much better route for me.
Where to get the money to invest in a business?
One of the most important key concepts in personal finance that I believe will be the key to success is to leverage other people’s money.
Here are 5 ways to fundraise for a business:
- Get a loan from family and friends
- Pitch the idea to a bank and get a loan
- Use your line of credit
- Refinance a property
- Work some overtime and save aggressively
In my case, I will be borrowing money from the bank to pursue this. My budget for this endeavour would be a business between 120k to 175k.
At an interest rate of 3.2%, a loan of 175,000 would mean that I would have to pay $466 per month to stay a float. If I can manage to secure a business that could cover this on top of all the other expenses, I would consider it a good investment.
What are your thoughts? Have you purchased a business before?
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