Business or first rental property ?

Question

Hello BP community,

A little about myself, my name is Jose and I’m from NYC originally but been living upstate NY since 2017 when I bought my first house. I have a great job that allows me to have a comfortable life, pay my mortgage, car, and support my family but I was living paycheck to paycheck. I have been reading books and listening to Bigger pockets podcast to learn more about the real estate world because I’m tired of living paycheck to paycheck.

I recently got a second 35 hrs a week job and I what I do is save 100% of that income and continue to live my life with my primary jobs income. So far I’ve saved approximately 15k. If I continue on this track i I am projected to have 30k by July. I must say I have the investment fever so I’ve been looking at houses online in Baltimore, Connecticut, Detroit, Colorado, and Texas just to get an idea of what’s out there.

This brings me to my point, a friend of mine is selling me a drop off dry cleaners near my house for 65k which he will finance 30k himself so I only have to come up with 35k. I wouldn’t work this myself so I would have to hire another employee making my income to approximately 500 to 1000 a month on a good month. I ultimately want to invest in rental properties and create long time passive income. Should I start that right away or give this business a chance???

I’m I better off with real estate right from the jump or should I invest in business first?

Ps: also, any advice on where to look for rental properties for a rookie like myself would be appreciate. Thank y’all in advance.

Bob B. · Answer

@Jose

@Jose Gonzalez I have owned dry cleaners and have friends that sold theirs.  I would encourage you to not buy one.  For most areas, the day of the 3 piece suit and starched shirts are in our past.  Blue jeans and wash and wear are the norm.  The dry cleaning business is tough and the reason the seller is willing to finance it isn because that's the only way he can sell it.  More than likely the downpayment is more than the business is worth.  Buy a couple of rental houses.  Sounds like you are a hard worker and  have the ability to save money.  You'll do fine, just stay the course.

Bill S. · Answer

@Jose Gonzalez my recommendation would be to invest close to home. By doing your own PM and handiman work you would likely be ahead vs hiring all that out in another state. You are ambitious and work hard. Look at putting the BRRR method to work in your own back yard and I think you will arrive at your goal sooner than offloading that to a PM in another state. You don't even have to be handy you can hire that out. It will be cheaper because they know you are watching them. You will make some mistakes but IMO you will be far ahead in the end.

Scott Sklare · Answer

Hello Jose, Would love to have a chat to discuss and help you decide.

Jim Froehlich · Answer

@Jose Gonzalez, I agree with a few posts above. #1...do real estate over dry cleaning unless you are going to run the business and enjoy it. #2, as @Bill S. says, really considering investing closer to home if: a) you want to be an ACTIVE investor, and b) $30K is your starting point.  I think you really have to consider how you envision yourself 5 and 10 years from now...once you can visualize an ideal end state, it can help you narrow down how to get there.  Things you might consider are...do you want to be a landlord?  do you want to put in sweat equity or would you rather keep your second job and just put in $$ for your investment?  is a trusted partnership best for you and what do you have to bring to a partnership?  would you rather be 100% passive investor or are you looking to replace your job with full-time REI?

In general, the south and midwest are best bang for the buck on RE investing these days, but be careful about remote investing and learn from those who specialize in it if you go that route!  you have to also keep in mind that wherever you go, there is fierce competition on best deals...so having someone trustworthy on the ground (i.e. agent/broker and proven property manager) is crucial.  Good Luck!

Jose Gonzalez · Answer

@Ned Carey

Those numbers are the net return. I also after reading the previous post from Bob decided against the dry cleaners. Thank you for your response.

David Stevoff · Answer

@Jose Gonzalez

Let me know when your in town I can show you around. Keep an open mind when coming here most areas are on a street by street basis. Tough to get proper appraisals and comps on the lower end homes.

David Stevoff · Answer

@Jose Gonzalez

Cash flow real estate is a top option for most investors and a lot less work than the dry cleaner.

As a Detroit investor you might want to get in the market sooner than later. We are seeing some serious revitalization and appreciation. Just in the past year alone there was a 12% appreciation throughout the whole city minus 2 small neighborhoods. Also Chrysler just announced yesterday that they are building a factory in Detroit adding 6500 jobs. Something tells me the real estate around the new factory will skyrocket. You can get a decent C class home for 30k all in and it might already be tenant occupied. I hope this helps good luck we were all beginners at one point.

Ned Carey · Answer

@Jose Gonzalez welcome to BP

I have heard that dry cleaning is a very profitable business. But that was before the current model just being a drop off and pickup point and sending the clothes out for cleaning. Based on those numbers it looks like a good investment. Unless those are gross numbers not net return.

Most businesses fail in the first three years. Of course real estate is risky to until you build your knowledge.

PS after seeing the post above I would not do the dry cleaners.

Jim Froehlich · Answer

@Jose Gonzalez, you're welcome and sounds like a great plan!  keep in mind when you say "I do want to be a Landlord and create passive income" that most people who are Landlords don't consider that "passive income", but it can be more passive than your day job.  Possibly you mean you want to do both, but I know when I started, I thought owning rentals was "passive". There is, of course, a whole spectrum.  PASSIVE for most RE investors actually means you just give your money to some other experienced entity that handles everything and cuts you a period check along with ownership statements.  Good luck!

Bill S. · Answer

@Jose Gonzalez No reason to pay all cash for your purchase. Get a conventional loan and do the BRRR approach. It might take a little longer to get the funds together but in the end you will likely be better off. Rehabing in a distant market is challenging to say the least. While you are earning, tell everyone you are looking to buy a property. Who knows what will turn up. You might find an owner carry off market property.

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