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First, key assumptions:
-You& #39;re using your own capital
-You& #39;re "dangerous" enough to feel competent in either realm
-Simple examples: no growth, closing costs, WC, etc.
-You& #39;re using your own capital
-You& #39;re "dangerous" enough to feel competent in either realm
-Simple examples: no growth, closing costs, WC, etc.
Ex. A: CRE
Starting cash: $100k
Debt: 80% LTV, 4.5%, 20yr term
Asset Value: $500k
NOI: $40k (8% cap, nice!)
Annual Debt Service: $30k
Annual FCF: $10k
Starting cash: $100k
Debt: 80% LTV, 4.5%, 20yr term
Asset Value: $500k
NOI: $40k (8% cap, nice!)
Annual Debt Service: $30k
Annual FCF: $10k
Ex. B: SMB
Starting cash: $100k
Debt: SBA, 90% LTV, 5.5%, 10yr term
SMB Value: $1MM
EBITDA: $250K (4x multiple)
Annual Debt Service: $117k
Annual FCF: $133k
Starting cash: $100k
Debt: SBA, 90% LTV, 5.5%, 10yr term
SMB Value: $1MM
EBITDA: $250K (4x multiple)
Annual Debt Service: $117k
Annual FCF: $133k
CRE is priced significantly higher relative to its Net Profit than SMB.
CRE Price: ~11-20x
SMB Price: ~1.5-6x
CRE Price: ~11-20x
SMB Price: ~1.5-6x
CRE may be more stable and more scalable, but at the start, cash flows are meaningful for your potential.
In our simple example above, SMB FCF > CRE FCF by 13x!
You could probably leave your W-2 for that, but not for the $10k CRE will bring you.
In our simple example above, SMB FCF > CRE FCF by 13x!
You could probably leave your W-2 for that, but not for the $10k CRE will bring you.
You have to generate surplus cash to move the ball fwd. Period.
This is tough to do in CRE alone. You& #39;ll find most of the folks we assoc. w/ CRE here have built their own SMBs around their CRE niche - REPE shops, PM cos, etc.
This is tough to do in CRE alone. You& #39;ll find most of the folks we assoc. w/ CRE here have built their own SMBs around their CRE niche - REPE shops, PM cos, etc.
One positive consideration for CRE:
Much more feasible to purchase CRE while maintaining your day job. Not so for SMB.
I started w/ CRE bc I knew I was locked into my job for two more years at time of purchase.
Once I left my job, I turned to SMB.
Much more feasible to purchase CRE while maintaining your day job. Not so for SMB.
I started w/ CRE bc I knew I was locked into my job for two more years at time of purchase.
Once I left my job, I turned to SMB.
Great thing is: You can have both!
Once you& #39;ve generated sufficient cash via SMB, you can now invest in CRE.
The correct order of operations here will have you growing your portfolio much faster.
Once you& #39;ve generated sufficient cash via SMB, you can now invest in CRE.
The correct order of operations here will have you growing your portfolio much faster.
