Today’s article is the result of a question some people have. People may have a certain amount of money saved, but they frequently don’t know whether to have a business or simply use that money to invest in real estate.
This is actually a very interesting topic. Let’s analyze the pros and cons of each option and see which is the best route to actually go about it.
On one side, we have the option to invest on a business, and on the other side, we have the real estate investment option. What do you need in order to run a business effectively? You’re going to need the expertise. You need to have the subject matter expertise because if you want to open up a restaurant, you need to either know how to cook or just simply have knowledge on how to recruit a good chef, and then, define the type of food.
If you invest in real estate, that doesn’t change so much. You will still need to acquire the expertise. First off, you will need to learn all there is to learn about funding or at least get the base of it. What is it that is required in order for me to be able to buy a property or qualify for a mortgage? Unless you have everything cash, but otherwise, most of us will have to go through the lending route, see what is it that the bank needs.
Invest in a Business or Invest in Real Estate: Get involved in the area of your investment
Also, we would need to get familiar with the area that we would like to invest. We would need to do research. We would need to gain insights as to what type of tenants in that area that we’re looking to invest. Then, how much is it that each and one of those properties are going to cost us? How much money do we actually need? There’s a lot that goes into preparing yourself to get into that chunk of expertise.
Since we’re talking about funding and money, that doesn’t really change much in terms of the business. You will probably have some money saved, but is that going to be enough for you to open up a whole business?
If not, you will probably have to go through the lending route in order to get enough capital for you to run the business the way you would like to run it, to buy that piece of equipment, for example, the refrigerators to not just host the beverages but also any food that you need, also freezers in order to keep the meat very well-preserved, otherwise, you’ll be dealing with a bunch of people getting into food poisoning and stuff like that. For money and equipment, you would need to get access to funding.
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In real estate, how is that any different? You will still need access to funding. You need access to funding to close on the property. You need access to funding to fix the property up in the event that you need to fix up the kitchen or the bathroom, just to at least get it rent-ready. We’re not talking about a massive renovation.
If you’re doing a massive renovation, great for you because that sounds like you’re going into flipping, but if you’re buying and holding that property so you can rent that out long term, you need to at least make sure you fixed that property and that it is rented out in a livable condition because you, as a landlord, have to provide a safe and sound place to live. You will require a capital as well.
Invest In Real Estate: Business = Time
Another important component to this that you need to consider is that when you run a business is time. Do you need to be in that business 24/7? Would you like hiring a store manager or a restaurant manager? There are some other questions that you also have to consider at the moment of making a decision. Make a list and analyze the answer. That list could content questions like:
1- What does it mean in terms of time?
2- Are you going to be there all the time?
3- Are you going to be the slave of that business?
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4- Can you delegate the work?
5- Will you manage the property yourself or will you hire a property manager?
Basically, having a business, in the restaurant business, or having real estate, it’s the same thing because you are running both businesses and you can apply the same elements and considerations but you will get different answers for each, of course. You will place them both in legal entities, whether it’s an LLC or a corporation.
Tax Deductions
Everything has to be run the same. If you were to place it in a corporation or an LLC, you will still have to keep the receipts for the income taxes so you can get all of those tax deductions at the end of the year, and you can deduct the interest on any loan that you can have that is related to your business. It’s the same thing in real estate.
It is more acceptable by society for you to become a business owner, for you to have a storefront, a business, whether it’s online or physical. Society seems to approve more of this when, as you find more information, you realize that real estate is not so different from a business. You have to run your real estate portfolio as it is a business if what you want is to invest in real estate. You will get into debt, but it is good debt. You are getting into debt by running your business as well by taking lines of products so you can afford to buy the ingredients for that restaurant or for that merchandise or from that store.
That’s no different here. You are applying for a mortgage as your line of credit. You’re utilizing different lines of credit, whether it’s a credit card, whether it’s HELOC, a traditional mortgage in itself. It’s all about the same. You will need to get yourself into debt in order to make the business happen.
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