Which came first...The chicken or the egg? 🤔

Question

I'm at a crossroads, torn between two exciting options: buying a business or investing in real estate. While I dream of pursuing both, I need to decide which one to tackle first. My current income as a Customer Service Manager isn't exactly groundbreaking (around $60,000), but I've been diligent in saving and investing. I've diversified my portfolio across individual accounts, 401(k)s, a Roth IRA, and even ventured into cryptocurrency. Peering into the cash flow potential of businesses on the market, it seems a $10,000 to $20,000 down payment on an SBA style loan could potentially surpass my current salary. Beyond the financial aspect, I yearn for the independence and fulfillment of being my own boss. I'm convinced that this path could accelerate my financial progress, paving the way for real estate investments in the near future. Would you agree or disagree? Open to all tips/advice. 🤜🤛-Dev

Alecia Loveless · Answer

@Devin Olson If you want to buy a business and ultimately become passive to it I think that’s a mistake. In my opinion real estate is your best bet for becoming passive if that’s what you’re looking to accomplish. I make less than you and have managed to buy 7 properties with 25 doors. On a typical week I might spend 6 hours on my real estate. I do still work my W-2 job to help get financing. Yes there are weeks I spend more hours on the real estate. For instance this past Tuesday the gas company was working on a project at one of my buildings and I was there for 9 hours. It was more effective for me to be there than to call my contractor off the project he’s working on to go sit there all day and not be working where he’s much more useful. (I work 3rd shift so I can go do things like that if necessary)I think for the average person it’s just a mistake to think you’ll ever reach the level that you can have businesses or enough real estate, or whatever that you won’t need to at least spend some amount of time in your business. As many great people as the Grant Cardones, Brandon Turners, or Warren Buffets of the world have hired to work for them they still spend a certain amount of time working on their businesses. I know you say you want to be involved and it excites you but then you say you eventually want to step back. I’d take some time to yourself, maybe a long weekend in a cabin away from home with a big notebook where you can focus and really look at the pros and cons of both real estate and a business and where you see yourself and your family in 1, 3, 5, and 10 years. Dream big. And figure out what you REALLY want to pursue. If you want a business don’t let anything stop you and then 5 years in buy a duplex or something and put it with a property management company. If you want real estate figure out your best way to go about that and then be the best at your job as you can be. And get your raises and promotions and put the extra money towards the down payment fund!Good luck.

Zachary Ware · Answer

Great Post Devin! I relate to this very closely and think both are great options but it really depends on what your goals. As Caleb said, starting your own business will require less money down and the return upside is typically significantly better than buying a small property. But the business will be a lot more time and effort than RE. If you can find a property to househack that you only have to put down 10k-20k, this might be a great option if you are comfortable growing your wealth slowly.

Michael Smythe · Answer

Real estate is a long-term play.You won't make meaningful cashflow at first. Many investors are asset-rich, but cash-poor.You could start a business that is affiliated with real estate to get exposure to potential deals, etc.Many start with trying wholesaling, which is very labor intensive, but takes little cash.Others have gone down the path of connecting with rental owners to partner on turning their LTR rentals into MTR or STR - effectively trading their time for a profit split.Poke around here on BP to get more ideas:)

Dan Thomas · Answer

@Devin OlsonGood luck to you man!

Dan Thomas · Answer

@Devin OlsonGenerally speaking, starting a business with little money up front is very difficult to scale. I've seen the gurus promoting the online arbitrage thing but everyone I know has given up and made no money...well actually they lost money.Buying a business with established Financials will allow sba or other lending partners to partner with a bank. If you start a business you will have a very difficilt time getting any kind of conventional financing in this market. Banks want to see 2 years of Financials. You will need to go private and pay crazy rates or give away equity.I love real estate, it gave me the ability to buy a business. As I'm sure you know neither is get rich quick but a business could be quicker but 100% hands on and hard work.I like both avenues. I still have rentals but my focus is growing my business actively and continuing to buy real estate as I can for long term wealth.

Samuel Diouf · Answer

Maybe a make business that is focused on some aspect of real estate.

Mo Karim · Answer

@Devin Olson - I'll keep it short. I think you buy a cash flowing business and buy real estate with any cash you have leftover (comfortably).

Caleb Brown · Answer

Just from experience. SBA loans are a pain to get and just plain risky to pay off. As an agent(it's a business) I started from 0 and grew it. Then I also have another business where I order items and sell on various platforms. If had business loans out the gate on either I'd be stressed. Starting from 0 instead of buying in has helped me grow. The caveat I'd say is if you are well versed and have work experience in the niche. You will have experience and connections. But owning a business verse working in one is very separate. Which ever direction you do make sure you are doing research, SBA loans are not easy to get

Caleb Brown · Answer

I disagree. Not with comparing the 2 but if you are interested in buying a business just start one. Build it from the ground up. Sure it's slower but you get to learn way more and have 0 risk(unless you add CC/debt). Use the 10-20K to learn, buy inventory, etc. Real estate has less moving parts compared to running a business. On the real estate side 10-20K does not give you a whole lot for DP wise unless you did a house hack. If you do buy a business make sure to do your diligence. Many on the lower scale are relying on the one buying to step in and run it, they are not passive at that scale.

Bonnie Low · Answer

I don't know if you follow Cody Sanchez and her blog Contrarian Thinking but it sounds like you are of a very similar mindset. She was featured on the very last Bigger Pockets Business podcast when J Scott was still hosting it. She talks about the number of "boring" business out there that can generate really robust cash flow and the number of small to medium business owners who are looking to retire even though they have a viable business, but no one to take it over from them. I personally think you're on the right track considering both investing in a business and investing in real estate and the two are not mutually exclusive. For example, have you considered buying a business ancillary to real estate like a window & door company, electrician, plumber, painting contractor or equipment rentals? All of these services are ones many investors rely on. Or, you could buy or start a property management company or landscaping business. Of course, you could go a totally different direction, but these are just some ideas that support what you're talking about doing. If you get a chance to listen to Cody Sanchez, I think you'll get a lot out of it. Good luck!