Empire Building: Buy Businesses or Real Estate?

[Iqen]

Here's a thought experiment for the other entrepreneurs on the forum: You're tired of your business and want out (I know, tough to imagine!). Now you want to start leveraging all the money you saved up to build a passive money machine. Do you dive into business acquisitions & turnarounds, or real estate?

 

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[The-J]

I love the idea of having real estate. Buying a piece of property that serves as an asset for years to come sounds amazing.

However, I've been a member of this forum for over a year and in that time, I have read about countless headaches, expenses, legal stuff, and all that jazz. That in itself wouldn't stop me (being a business owner you deal with all that crap too and then some) but real estate is a slow-moving asset. Slowlaners who leverage real estate tend to use it for net worth and income growth because it would simply take too long for them to be a true passive income source to the point where they could quit their jobs and live well off of it.

For example, I met a man at a networking event. He bashed my country (stupid Canadians, thinking that all of the US is dangerous and filled with ghettos) but he was a cool guy nonetheless. I asked him if he owned any real estate. His answer was "Of course, how else am I going to retire early?" He had white in his hairs and by my estimates is about 49 years old. He said he was set to retire in the next five years or so. So he is set to retire about 11 years early.

It's possible to do it in a Fastlane manner, as talked about in TMF called Intentional Iteration, where you buy buy buy buy over and over again, but it's a slow-moving process. A speaker came to my school and talked about his holdings/consulting company that he started when he was 19. He's 28 now and he's still building it. He bought plots of land in the Greater Toronto Area and built large complexes on it. That's Fastlane. But that's a full-time business in itself. This I am not interested in. Too much work.

The attractive method for me is the "Slowlane" method, where I buy a small property, rent it out, enjoy the income and deal with small headaches as they come. I see it as a place to park money. But I'd only do that after I'm enjoying a nice income, because if my income isn't high enough, I'm not doing any better than the Slowlaner.

What I am trying to say with this long a$$ post is, after I liquidate, I will no longer see any need to invest all of my money in any business but instead >90% of my money will be parked in passive income instruments. Honestly, if my business hits it big and I ever get the itch to start a new one, I'll bootstrap it just like I did this one.

Or I could pull an MJ and buy into money instruments. It must be nice having governments pay you for use of your money.

 

[Iqen]

Cool, good idea! I guess I should be more specific. Let's say you were looking not to retire but to expand aggressively. Would you still go with RE?

 

[The-J]

Good question.

Ask me when I'm there. There's a lot of things one can do with real estate.

 

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[Iqen]

Anyone else thought about (or pursued) this?

 

[danoodle]

I am currently pursuing my version of the fastlane through RE. My version sounds pathetic to most people, but to me it stands for freedom. I have been slowly but steadily acquiring more rentals and fix and flips and am just gonna keep growing the cashflow until I am comfortable. After I am comfortable, I figure I can keep adding to it through additional RE or pursue some other fastlane ventures online or otherwise. So far it has been great, no major problems and mostly passive. I know most people will say it's wrong, but I do all the work myself too. Eventually I will have everything managed and ideally move up to commercial RE, like a nice managed apartment complex in a college town with very little hassles.

 

[MakeItHappen]

I would go the RE route as well.
But i would pursue it like a fastlane business. I would look ether for good flips to get more cash to invest or otherwise for real estate that generates a decent cashflow. A lot of the headache that come with real estate can be outsourced or you could build a team that does all the managment for you so that i get really VERY passive. But you obv need decent cashflow for this.

I really love the idea about building and owning your own RE empire!

 

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[vladsoriano]

Guys, I'm from the UK where the current climate is currently brilliant for RE.
My take on this is that if you have a real-estate portfolio (or starting one like myself), then you instantly have a 2-tier income stream.

1) Investment (ie. Buying Houses)
2) Education

#2 will scale alot quicker and will therefore achieve greater cashflow. But #1 has a greater % return because you would always use leverage (ie borrowing) to have a No Money Left In Deal situation.

I'm currently in the process of my first flip. I'm documenting the process as part of my Education system that I hope to put out via Internet Marketing. Most RE "gurus" have an education income stream and the current popular model is : Book > Seminar > Course as the model. Cliched and frankly a bit cheeky considering some of the prices they charge - students are getting into instant debt just to attend the course. Fastlane is soooo much better and is the model I'm using.

But in terms of scale, if you have another business that is able to fund a capital base of 50K to 100K, an investment in RE would make an infinite return as long as the deposit and refurb moneys are returned on 2nd mortgage revaluation. This can take 1-2 years, but will able to fund a move towards commercial property which in itself can yield 6 figure sums. 5 Year Fastlane Plan?

I find that RE is more about solving people's housing problems than it is about bricks and mortar. Hence, always a good fastlane model.

 

[Rickson9]

Business aquisitions/turnarounds and real estate are both businesses. The second is just a specific business type.

Your question is simliar to: "If you were extremely athletic would you focus on sports or football?"

 

[Iqen]

True but most people draw a distinction between real estate and other businesses. Look at this forum, for example:

Your Roads (Business Paths)
- General Entrepreneurship and Startup
- Internet / Mobile Apps / Software
- Franchising, Chains, Traditional B&M
- Business with physical locations
- Inventing, Innovating, Licensing, Authoring
- Real Estate Investing

 

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[vladsoriano]

Iqen,

Going back to your original question...

Now you want to start leveraging all the money you saved up to build a passive money machine. Do you dive into business acquisitions & turnarounds, or real estate?

How "passive" is passive? Do you mean the end result is a passive income or do you mean that process in which you invest in a business "passive"?

To me, JV type investments could be loosely termed passive, since you're not doing the actual work. With RE, the only side that is passive is Rental Income + Capital Appreciation. One is Fastlane the latter slowlane (usually). The acquisition of Real Estate, though isn't passive at all... it's like any other business - it's a process, which could take 1-2 years to set up.

Do you mean invest in something that has a quick turn-around that results in passive income?

Vlad

 

[drewjones]

I'd choose real estate. The one thing about real estate is it is the only commodity that never goes broke.

 

[Pete799p]

As someone who does real estate full-time (not really full-time, but more time than any other venture), I actually don't choose to roll much of my active income back into real estate as a long-term investment. Personally, landlording on a large scale is not for me, except as a mid-term income generator.

Long-term, most of my money goes into two areas:

1. Investing in businesses (angel investing); and
2. Lending to real estate investors.

Both of these are more passive than landlording, and if done well, I believe the returns will outweigh long-term buy-and-hold real estate investments. I do know some large scale landlords -- most of them are either overworked or don't have as much control over their investments as I would want (if I were them).

Just my $.02...

In regards to angel investing I was wondering how you go about locating sound investments. Do you go to certain conferences/ events or do you invest primarily through referrals/ your network.

PS I am hoping to be breaking ground on my first rehab shortly and I have been closely following your blog. Thanks again for all of the great resources you have provided everyone.

 

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[drewjones]

For angel investing, I started by looking through databases and listing down email addresses and numbers. I then email them with the details and a follow up call the day after.

One thing you must do is create a relationship with the guy that makes the decisions. If you can do that on the first call, you've got an in with someone who over time will invest in your projects over and over again.

Angel Investors and Private Equities are more interested in the person than they are the product or service.

If it makes sense, they do it.

If they give you the "This does not fit within our scope", ask them "Then what is your current scope?"

This will give you an idea of what this investor is looking to invest in right now.