Question:
I am recently retired from a large company but I am hoping to maintain a small income stream during my retirement. I am torn between buying a small business to run and investing in commercial real estate and becoming a landlord. Can you offer any advice?
Answer:
These are two very viable options; however, each one has completely different considerations that need to be made. So much depends upon what you’d really like to do.
Commercial real estate is generally less of a risk than buying a business.
However, the returns on your investment reflect this, with a business generating far better returns if you buy the right one.
The good news about buying real estate is even if you overpay a bit, as long as you have the financial resources to withstand any market downturn, it will recover.
Right now, as you know well, real estate returns are far lower than in the past because the market is so hot. But the building will still be standing in a year. If you buy the wrong business, you’ll likely be out of business.
Having said this, I personally prefer the option of buying a business over real estate. I prefer the higher potential returns and, more importantly, I truly enjoy the excitement of the business buying process and then getting into a new venture and building the business. To me, it is far more intellectually challenging than commercial real estate.
Owning commercial real estate is not without its challenges.
There are problems that come with being a landlord and you may want to speak to some landlords and property managers to get a clear picture on what they do everyday. On this note, perhaps you can enjoy the best of both worlds and consider buying a property management business or another enterprise that deals in the world of real estate?
I’m sure an investment advisor would tell you to buy real estate or even to diversify and do both. It will all come down to what it is that you want from the investment.
Owning a business, though the returns can be attractive and the gratification level great, does take work.
In fact, it takes hard work and it is difficult to become successful if you only attack it on a part-time basis. But I’m a business junkie, and to me the whole concept of business ownership, even with its challenges, is fascinating and I couldn’t imagine doing anything else.