EntreLeadership - Dave Answers: Should I Buy Property for My Business?

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Starting point is 00:01:06 Kyle is with us in Dayton, Ohio. Hi, Kyle. How are you? I'm doing well, Dave. How are you? Better than I deserve. What's up? Just looking for maybe a little guidance on the next steps with my business. Okay. What are you talking about? So I have a small used car operation, mainly Euro-focused. So that's kind of my niche. We do some service. Most service is for my inventory. And I've been looking at, you know, slowly growing over the last decade, and I'm just kind of at a point where I would like to expand my operation a little bit, and I have currently one service bay. I'd like to get a few more units and bays available. I'm kind of in a tough spot where I'm trying to decide if I should purchase something else, stay where I'm at, or what the right decision is with my current

Starting point is 00:02:03 operation. You own the property where you are? No, I do not. I'm leaving. thing. Okay. And it is month to month lease, which is one reason why I'm looking at trying to purchase, because that's kind of a risk that I have kind of seen from my business standpoint is, you know, I am in a lease. And so if there's ever a sale, I'm going to be kind of in a challenging spot. Yeah, the other thing is a long-term lease, which would not put you in that spot, but also keeps you from having to be in the real estate business. Correct. Yeah. So is there anything in your area that has some bays that you could just go talk about a long-term lease? So I've been looking extensively.

Starting point is 00:02:49 I really, I think I would like to purchase. I'd like to have some ownership in the real estate just from an overall value standpoint of the business operation. So it's kind of my goal. I would like to own something. I've been doing this for, I've had it going on for about 10 years now, a little longer. and so my goal is to own something and I've explored leasing other facilities and at this point lease rates and kind of purchasing I feel like I would rather buy just to kind of have some ownership into it so what's the price point to buy something like you're talking about so I would say what I typically

Starting point is 00:03:28 see commercial spaces going forward depending on conditional location 300 to a million There's no possible way. You can justify that with four bays. A million dollars? Well, and some of these guys, yes. Some of these guys are going to be, they're asking what I would call premium bucks for the location. And maybe four bays, maybe call it some indoor storage.

Starting point is 00:03:55 I would like to have an indoor showroom. It would be one of my goals. So maybe a facility, 8,000 square feet to 12 or 15,000. Okay. So you're selling cars and running repairs? Correct. Okay. And what's your top?

Starting point is 00:04:13 What is your gross revenues a year? Last year was about $4.5 million. And what's your profit on that? It's take homes about $350 to $4. Okay. And how much of this money do you have saved up in cash to buy this property with? So that's kind of my challenging position, is how much, So my operating capital is about 1.35.

Starting point is 00:04:41 And so if I pull from my operating capital, then what I'm going to do is kind of I'll take away from my capital that I purchased cars with. No, no, you won't. Because you're already using the sale of car one to buy car two. Correct, yes. So you don't use any of that million one when you do it. you just turn your inventory over.

Starting point is 00:05:07 The only reason you'd use some of the million one for inventory is if you expanded your inventory. Yes. Okay. So we don't expand inventory until we grow the capital back because we're going to use the capital, pay cash for the real estate. And that is my just position there where I feel like I don't know what the right path to go is. Do not buy the real estate unless you pay cash for it. Okay. That's my advice.

Starting point is 00:05:35 If you pay cash for it out of the million one that you got sitting there, you buy a $400,000 piece of property, and you got enough bays, and you got enough stuff. And here's the thing. If you can buy a piece of property that has some of what you want on it, and then out of future profits organically add bays because now you own the real estate, okay, we've got the way this property is configured on the piece of dirt, I can add some bays over here to the left side later. And it's got three now, and I could add three more later.

Starting point is 00:06:11 And it's got a showroom, but it's not exactly what I want. But I could spruce it up or add later. And you do not have to have everything perfect on the front end. You can expand into or renovate into the property if you get something that you can actually afford with future profits. And so, you know, set yourself a budget, in this case, a half million dollars max and then get into something and yeah i would make that move then under those scenarios but but um the idea that i'm going to buy a piece of dirt and put a

Starting point is 00:06:45 brand new building on it all for 500 grand you're not right and it has gotten quotes for new builds and i've and i've gone back and forth with existing locations uh we're fortunate enough we're in an area that you can find real estate. The problem is it's like building a home for yourself. You get scope creep. Right. And you go from, I need some bays to operate to, oh, it'd be nice to have that and nice to have that and nice to have that.

Starting point is 00:07:19 And pretty soon I'm at $2 million and the whole thing has become freaking insanity. So just be careful with the scope creep on how nice the property has to be. You want minimal functional to get out of a month-to-month lease and get in the real estate business. get minimal functional and then let the stinking business pay for its own expand expansion and don't talk about a dime a debt and don't overbuild this you'll build a freaking white elephant that you're stuck with then don't overdo this it's a it's a car shop dude this is not i mean don't go crazy this is you want the building that gets the job done that's all we'll get right back to our episode, but first, your team is worth every dollar you invest in them. And behind payroll,

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Starting point is 00:09:29 for some reason I just looked up and saw engine and transmission so-and-so. I won't name it, and I won't name the town. Great little small-town Tennessee thing. And this is the classic metal building. We used to call them Butler buildings. It's a metal, sheet metal building. And there is more dirt and grease around this thing.

Starting point is 00:09:58 Nasty. And you know what went through my head? that guy can fix a transmission. It didn't go through my head that if I got my transmission fixed in there, I'd have to mortgage my house. But I got a feeling that guy, he could probably put a transmission in a NASCAR. I got a feeling.

Starting point is 00:10:21 There's enough grease around there. If he can't, it's a shame. He should be able to. And so, you know, this, what message are you sending? Are you, you know, are you going to set up next to burger between, Burger King and what a burger and pay franchise row locations and it's shiny and it's and you're screaming at your customer I'm about to overcharge you to pay for this piece of real estate I bought that's what you got to be careful of because that's actually what you're going to

Starting point is 00:10:50 end up doing if you're not careful why you know this real estate is not a it doesn't have to be greasy and nasty I don't mean that but this idea that somehow in the automotive world that you have to be pristine and brand new and look like a mite of smuffler shop is bull crap. You don't. And so don't overspend, Kyle, and pay cash and give yourself room to expand organically with the future profits and the fact that you got out of a month-to-month leases allowing you to sleep better at night. I'm with you on the purchase, but those are the limitations that I would put on it.

Starting point is 00:11:27 Really good question. I think you got a good thing there. I think you've done a great job. Well, I know you do. You got a million dollars out of it. Shut up. You did a great job. It's awesome.

Starting point is 00:11:35 Way to go. Folks, if you enjoyed today's episode, be sure to like, share, and subscribe for more real world leadership content. I'm your host Dave Ramsey, and this is Entrae Leadership.

EntreLeadership - Dave Answers: Should I Buy Property for My Business?

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