Part of McDonald’s long-term success comes the fact that it owns the land and buildings at most of its locations – and its franchisees pay it rent. Today’s entrepreneurs can follow the lead of the golden arches and build wealth by owning their commercial property and becoming a landlord themselves.
If you ask an executive to evaluate the McDonald’s restaurant business model, you might receive a detailed report on the sales of Big Macs, french fries and milkshakes. Yet, when I analyze McDonald’s, I think real estate.
As anyone that’s watched “The Founder” knows, McDonald’s isn’t just a fast-food chain but also a brilliant $30 billion real-estate company. Part of its long-term success comes from a simple formula that goes beyond serving consistent products across thousands of restaurants around the world. A big part of its profitability comes from the fact that it owns the land and buildings at most of its locations – and its franchisees pay McDonald’s rent.
One of the most recognizable brands on the planet makes a lot of money by owning commercial real estate. Entrepreneurs who sell food, manufacture consumer goods, rent hotel rooms or run practically any other type of business can follow the lead of McDonald’s and use commercial real estate ownership as a pathway to build their wealth and secure a better retirement. This article outlines multiple strategies on how small business owners can grow their wealth with real estate and even become mini land barons.
Many entrepreneurs make a mistake and only follow a couple paths toward building their wealth. For example, funding a retirement account and growing a business that they can exit someday by selling it to a third party. Don’t get me wrong, these are both important strategies, but many entrepreneurs forget about what I call the “wealth beneath their feet,” the commercial real estate which is needed by their business to operate.
Stop paying rent (to other people)
One immediate benefit from buying your commercial property is that you no longer pay rent – at least not to your former landlord. Once you own the property, you will be responsible for a monthly mortgage payment, but this money will go toward building your wealth, not that of a landlord. I have represented many business owners whose monthly mortgage payments were less than what they were paying in rent – often with larger and better space.
Grow an asset
While you can’t predict that commercial real estate will appreciate, it is traditionally a good investment. Commercial buildings can grow in value significantly, particularly if you hold the property for 10-20 years. I can offer no guarantees, but many small business owners who buy their buildings end up with an enviable gain when the time comes to sell. Commercial real estate ownership is a sound and proven wealth creation strategy.
Potential for an “annuity”
If you sell your business but retain ownership of the building in which it operates, you completely “turn the tables” and become a landlord yourself. Whoever buys your business ends up not only paying you for the value of the business but also pays rent to you as the business continues to operate. Buying a property now can create an income stream that lasts into and beyond your retirement.
Flexibility when the time comes to sell
The ideal scenario when selling a business is to receive a cash offer that pays a fair market value for the company you have created. However, when it comes to selling a small business, sometimes it’s not that clean and easy, particularly if you want to pass your business down to the next generation of your family. Perhaps your children can’t afford fair market value, or you want to offer them financing that will enable them to pay over time. If you own your building and receive regular rent payments as part of the purchase agreement, it will make this financial transition easier and give flexibility to the seller. Alternatively, you could sell your business and continue renting your property to that buy – or sell the building.
As entrepreneurs, we pour everything we have into our businesses, but we often fail to properly plan for our retirement. Yes, we think about selling our business one day, but what other strategies can small business owners employ now that don’t rely on exiting through a sale or buyout? The answer is owning real estate for our business – a strategy which can save a business money and help the owner generate wealth. We can all look to the real estate wisdom of the “golden arches” to help fund our golden years.