Franchise or Property Investment? (England)

RugStug

Should i invest my capital in property or in a food/fitness franchise?

Here is what you need to know:
1) I will want to have both as part of my long term plan but want to know which one is better to start with as my capital can only be used for either for starters
2) I have experience in the fitness industry and ran a couple of fast food stores and i'm currently working in finance so the "know what you are doing " factor is sorted
3) My capital is limited so i cannot buy both to start with
4)Cashflow is important however ive heard property investment is a very long term investment however id like to reap the rewards much quicker, this is to say i'm not one of those lunatics who just want a quick buck overnight

I'd appreciate your help guys!

atush

Well, if you are skilled in fast food and fitness that takes away some of the points against. Then there is the cost, I would assume something like a subway franchise would be far cheaper than a fitness franchise (or setting up your own fitness place and advertising as you are not part of a national chain).

Of these 2 I would pick the fast food one, for a few reasons. Costs to set up, and risk of failure. Fast food held up int he last recession as people gave up the gym before taking their kids out for a treat.

Property to live in is your best investment, if talking purely rental I would ask why. Do you have skills int he trades/real estate?

Why not consider a pension instead? Or do you already have a good well filled pension and own your own home?

Thrugelmir

RugStug wrote: »

i'm currently working in finance so the "know what you are doing " factor is sorted

Then knock up a financial business plan for each activity.

Surprising how many people don't then wonder why it's all gone wrong at a later date.

RugStug

atush wrote: »

Well, if you are skilled in fast food and fitness that takes away some of the points against. Then there is the cost, I would assume something like a subway franchise would be far cheaper than a fitness franchise (or setting up your own fitness place and advertising as you are not part of a national chain).

Of these 2 I would pick the fast food one, for a few reasons. Costs to set up, and risk of failure. Fast food held up int he last recession as people gave up the gym before taking their kids out for a treat.

Property to live in is your best investment, if talking purely rental I would ask why. Do you have skills in the trades/real estate?

Why not consider a pension instead? Or do you already have a good well filled pension and own your own home?

Thanks for your reply. As a matter of fact, i managed 2 subway restaurants! In real estate, to be perfectly honest with you, i have no experience, however i'm currently reading a lot of books to educate myself and watching a lot f property seminars and shows to gain knowledge. In terms of pension, the company that i work for provides an alright one which coupled with state pension would make a decent one if all goes wrong.

The cost of setting up a fitness franchise is £95-£105 and subway is £101,500

RugStug

Thrugelmir wrote: »

Then knock up a financial business plan for each activity.

Surprising how many people don't then wonder why it's all gone wrong at a later date.

My capital is limited. The question is, i can only start with one and i really want to get both bt which one to be the first one is the question...

bowlhead99

With a property investment you hope to get tenants in at a level of rent that will cover the mortgage interest and any required capital repayment and repairs / renovations and taxes, and then it slowly starts delivering you a net income (which might not be much in terms of cold hard cash in your hand if its being done on a capital repayment mortgage and the money is going into that). But you don't need to be involved with it 24/7 and can keep your day job in finance bringing in money and building up more capital for the next venture. You mentioned you had experience in fast food and fitness. Do you have any in DIY, renovating property or sourcing and vetting tenants? Do you already have your own property?

With the franchise, presumably you would not be starting up a potentially big-loss-making business from scratch without being incredibly hands-on, so you wouldn't be able to keep the day job, right? So there's a lifestyle choice in terms of where are you spending your time and energy - building your business or doing your current day job?

I was also intrigued whether food/fitness franchise meant a combined food and fitness thing, or you mean either you would do a food one or a fitness one having already tried your hand in both industries and got on OK. I guess from your reply above, it's the latter.

This potentially implies you haven't really thought too much about exactly where your talents and interests are best utilised and don't have a well fleshed out business plan and a deep understanding of what the cashflow requirements and risks are for each type of business. Without that, it would be very difficult to know how it stacks up against a leveraged property investment in terms of risks or potential rewards or capital requirements. Certainly, it would make it difficult to ask anonymous people on an internet forum for guidance and get any structured replies.

I expect if you intend to do both the food/fitness franchise and the investment property at some point in the rest of your life, the franchise business may be something to do while you're younger because it absorbs a lot of time and energy while your property empire could accumulate later, given it's only a part time job to keep it running and if you had enough capital to appoint builders and tradesmen and agencies you could probably oversee it as a little old man in retirement, while that would be the wrong time of your life to try and launch a fast food / fitness joint.

RugStug

bowlhead99 wrote: »

With a property investment you hope to get tenants in at a level of rent that will cover the mortgage interest and any required capital repayment and repairs / renovations and taxes, and then it slowly starts delivering you a net income (which might not be much in terms of cold hard cash in your hand if its being done on a capital repayment mortgage and the money is going into that). But you don't need to be involved with it 24/7 and can keep your day job in finance bringing in money and building up more capital for the next venture. You mentioned you had experience in fast food and fitness. Do you have any in DIY, renovating property or sourcing and vetting tenants? Do you already have your own property?

With the franchise, presumably you would not be starting up a potentially big-loss-making business from scratch without being incredibly hands-on, so you wouldn't be able to keep the day job, right? So there's a lifestyle choice in terms of where are you spending your time and energy - building your business or doing your current day job?

I was also intrigued whether food/fitness franchise meant a combined food and fitness thing, or you mean either you would do a food one or a fitness one having already tried your hand in both industries and got on OK. I guess from your reply above, it's the latter.

This potentially implies you haven't really thought too much about exactly where your talents and interests are best utilised and don't have a well fleshed out business plan and a deep understanding of what the cashflow requirements and risks are for each type of business. Without that, it would be very difficult to know how it stacks up against a leveraged property investment in terms of risks or potential rewards or capital requirements. Certainly, it would make it difficult to ask anonymous people on an internet forum for guidance and get any structured replies.

I expect if you intend to do both the food/fitness franchise and the investment property at some point in the rest of your life, the franchise business may be something to do while you're younger because it absorbs a lot of time and energy while your property empire could accumulate later, given it's only a part time job to keep it running and if you had enough capital to appoint builders and tradesmen and agencies you could probably oversee it as a little old man in retirement, while that would be the wrong time of your life to try and launch a fast food / fitness joint.

Yes, i meant either food franchise or fitness franchise. Luckily, my business partner will run the franchise and i will oversee it more or less rather than working in the franchise.
As mentioned earlier, i have no real experience in real estate but i'm currently learning so this was why i asked this question here to see what other people think about this topic. After studying the cashflow of subway and another fitness firm, i personally tend to gravitate towards a gym franchise as running costs are almost fixed unlike food places and overall, higher profit and lower costs....

bowlhead99

Well, running costs of a gym are probably a bit more fixed because what the people are paying for is the building around them for an hour or so and fixed physical equipment and shower units and so on. Whereas in a sandwich shop you will be buying a lot more bread rolls and processed chicken if you get more customers.

However with any business that has a big fixed cost base you are incredibly geared to the level of customers. One new customer will give you his £40 for the month and you might not need any more staff to supervise him or employ any more cleaners to clean up after him or use any more electricity to power the telly which was already on for the benefit of the person on the bike machine next to him.

This sounds great until you lose three customers when they give up on their new year's resolutions at the end of January and you lose their three £40s every month without saving a penny of cost. Presumably the £100k startup money is going to have a lot of buffer for the months you have negative cashflow and need to pay the rent and your staff if you don't get the customer base to breakeven?

Also, hopefully the cashflows of the fitness firm you studied were realistic ones rather than those produced in a 'buy a franchise from us!' promotional pack. In order for your business to have the same success, your part of the country would need to be experiencing the same overall economic conditions and demographic shifts and changes in preferences over the next five years, as the location of the other gym did over the period the cashflows were produced. It's quite difficult to account for those overall macro factors when you are looking at setting up a business and hoping it matches someone else's growth rates and profitability.

Does your partner that would run it have an equal level of skill/interest in managing gyms versus fast food restaurants? I assume if you were getting into real estate you would go it alone or would he put some capital into that too?

Anyway, good luck with whatever you decide.

RugStug

bowlhead99 wrote: »

Well, running costs of a gym are probably a bit more fixed because what the people are paying for is the building around them for an hour or so and fixed physical equipment and shower units and so on. Whereas in a sandwich shop you will be buying a lot more bread rolls and processed chicken if you get more customers.

However with any business that has a big fixed cost base you are incredibly geared to the level of customers. One new customer will give you his £40 for the month and you might not need any more staff to supervise him or employ any more cleaners to clean up after him or use any more electricity to power the telly which was already on for the benefit of the person on the bike machine next to him.

This sounds great until you lose three customers when they give up on their new year's resolutions at the end of January and you lose their three £40s every month without saving a penny of cost. Presumably the £100k startup money is going to have a lot of buffer for the months you have negative cashflow and need to pay the rent and your staff if you don't get the customer base to breakeven?

Also, hopefully the cashflows of the fitness firm you studied were realistic ones rather than those produced in a 'buy a franchise from us!' promotional pack. In order for your business to have the same success, your part of the country would need to be experiencing the same overall economic conditions and demographic shifts and changes in preferences over the next five years, as the location of the other gym did over the period the cashflows were produced. It's quite difficult to account for those overall macro factors when you are looking at setting up a business and hoping it matches someone else's growth rates and profitability.

Does your partner that would run it have an equal level of skill/interest in managing gyms versus fast food restaurants? I assume if you were getting into real estate you would go it alone or would he put some capital into that too?

Anyway, good luck with whatever you decide.

You are absolutely right about the fixed cost issue. Th reason i believe the cashflow forecast that i looked at was because of the performance of other franchisees across the country (Which i queried myself and through the head office to ensure the honesty of those figures) and 95% of them had hit the target in advance. My business partner is my mother and she has over 20 years of management experience and has interest and experience within pharmaceutical and fitness industry.

In terms of whether my business partner chip in for the real estate afterwards, the current £100k is from both of us so the income from any asset or business is shared so or instance if we use some of the profit from this business for real estate, then we intend to divide the portfolio between us if it makes sense?

Thrugelmir

RugStug wrote: »

My capital is limited. The question is, i can only start with one and i really want to get both bt which one to be the first one is the question...

Without financial projections you'll never know.

As put down on paper the situation is more than likely going to be totally different to how you envisage it on your head.