Why Real Estate and Why Not a Restaurant – by Ron LeGrand
I’ve been in a few businesses in my life, and still have a few and probably will until I check into the nursing home, and maybe even after.
When comparing buying and selling houses to other businesses, the contrast is so big, sometimes I wonder what the world would be like if all small business owners were exposed to my training before they opened their businesses.
Let’s take a look and compare to my restaurant.
You can start real estate immediately with no money, no credit and no risk and expect to make a profit within the first month or two.
The restaurant required several months looking for a location I had to build out. Then, I signed a long lease with a $7,500 deposit (albeit non-recourse). Then it took 10 months and several hundred thousand dollars to get it opened and a massive amount of my time. As to the profit…it’s been a serious negative, and will take many more months to break even. Then, we’ll discuss a profit, maybe.
Your real estate business has no employees, only a virtual assistant or two. That means no payroll alligator to suck you dry and no employees to manage or account for and no regulations strangling the life out of your business.
The restaurant has 30 employees, all who can barely make a living and are therefore always looking or working other jobs. It’s a big day-care center requiring: an in-house psychologist (that’s Holly, our bartender), a tyrant boss to keep order (that’s James, the GM and Chef), and an owner with enough skills, patience, grit and anger control to manage the managers (that’s me…on some days).
When the employees call in sick, chaos ensues, tempers flare and gossip flows. Rarely do we get notice when they leave, and they’re like tenants needing constant training. Most are young, and I’m amazed at how few skills our young people acquire to put them in the work environment. For example, I found myself in the men’s restroom the other night teaching a busser how to ring out a mop. Shoot me please. Is it fair to assume a man could reach 22 years old and acquire enough knowledge on his own to twist a mop until no more water comes out?
Nope! Expert training required. Our payroll is about $10,000 per week. That’s right, per week. What’s yours in real estate? That’s 10K you don’t have to make very week before all the other costs kick in.
Then, there are the regulations: the reporting, the accounting, OSHA , workman’s comp, employee rights laws, the health department, alcohol and tobacco regs, health and safety regs, state laws, local laws, federal laws, licensing laws, etc. And, did you know every time you give a server a tip, the owner has to pay about 14% of that amount in taxes?
So, how much of this crap do you have in real estate? Almost NONE!
Your real estate business has almost no overhead. You’ll pay out a few bucks for a VA, a little money for web hosting and services, and a small list of very insignificant costs if you’re doing it correctly. You have almost no money in marketing today to buy or sell since it’s done online with the aid of a few signs. There’s no rent, no staff, no insurance, no goods or supplies to speak of, no equipment…literally, almost no overhead.
The restaurant currently requires about $30,000 a week in revenue to break even. That’s every week: spring, summer, fall, winter, rain, shine, hot or cold.
How’d you like to have to make 30K a week in real estate before you got a dime? Fortunately, in those weeks you make 30K, you get to keep almost all of it. LeGrand’s Steak and Seafood doesn’t.
You can do real estate in almost any city, start up immediately and move if you feel like it. Since you don’t have an office building or other costly entanglements, there’s nothing holding you down. You can work in the north in the summer and the south in the winter; Canada, part of the year, the U.S. the other part of the year. You can be in one city and operate in another with boots on the ground there, many of my students are.
Try to move with any brick and mortar business. Buildings don’t fit on airplanes. You’re stuck in one location with an iron cage around you and feel trapped and soon lose all perspective of what you should be doing while dealing with daily minutia.
In real estate, you have little or no risk if done properly. You are taught by me not to use your money or credit, not make promises you can’t keep and use attorneys to close your deals. If you do these things and put yourself in a position where you can’t lose, it’s hard to lose.
In restaurants or any brick and mortar business, the odds are against you. It’s almost impossible to not be at risk because all required capital to open, and most require credit and expenses to occur even if revenue doesn’t.
In real estate, you can achieve a six figure net income rather easily in the first year and many get to seven figures in the second or third year. When you get to keep the revenue, it’s a lot easier than when you’re drowning in expense.
To achieve a six or seven figure net income in a restaurant or brick and mortar business puts you in the slim minority. Did you know that 93% of all businesses don’t gross $1,000,000 in a year?
My goal for the restaurant is $500K net and was from the beginning. To achieve that, I’ll have to triple the current gross without tripling the expenses. It won’t be easy and will take time and a willingness to feed the elephant along with a lot of work. I could net the same with about 15 rehab deals and less in some markets. Our friend, Jay Conner, nets $52,000 average per deal. Many pop $50,000 per deal.
In real estate, your time is almost all your own if done properly. V.A.s do most of the work. There’s no store to open or close, no hours of operation. I run mine doing 6-12 deals a month in less than 5 hours a month. Granted, I have Scot who runs the business, so my time is spent talking with him and an occasional house visit.
Scot does work full-time, but your objective is to get as good as Scot and then replace yourself so your time needed is limited like mine.
At the restaurant, my presence is not required, in fact, often not welcome, but that’s not the case in most businesses. However, since I don’t work there all the time it doesn’t get the focus it could, thus slowing the growth process and increasing the tab to get to break even. It’s always on my mind. I’m regularly pissed off at the things some staff members do that I’d consider common sense. A normal owner operator would find it very difficult to be away for long and if he/she tried to vacation, worrying about the business would likely ruin it.
You can build passive income in real estate through lease options, owner financing, buying paper and making private loans.
I’ll bet there isn’t one out of 10,000 businesses that have passive income. I know the restaurant doesn’t. It can and that is my intent through selling memberships after it gets more established.
In real estate, your formal training is a few days with me, a few thousand dollars and six months one on one with our mentors who all run seven figure businesses of their own. They’ll keep you from making big mistakes and hold you accountable until you succeed. Who’s going to do that in a brick and mortar business? In fact, who cares if you succeed outside of your family? Most take joy in seeing you fail so they can feel better about their miserable lives.
Lucky, you discovered real estate and lucky you discovered Ron LeGrand and Global Publishing. We want you to succeed because if you don’t, we don’t.
Yes, the Global Publishing staff really does care. It’s made up of families like yours with caring people with servant hearts. The same goes for all of our mentors, some who paid a horrible price before they found us, all students turned leaders!
Yep, you’re lucky! I hope you truly believe that because I am honored, privileged and proud to say we are the best in the world at what we do.
Okay, I know you’re asking, “Why the hell would a semi-smart guru with all those years of experience, knowing all the downside want to be foolish enough to open a restaurant?” Is that what you want to know??? Well, is it?
Okay, Okay, I’ll try to answer.
First, it’s half way between my house and office and we ate out 6 or 7 days a week before we opened it. Bev says 47 years of cooking practice is enough.
Second, I fully intend to make a decent profit and recover our investment over time. It’s going to be a lot harder and take longer than anticipated, but that’s still the plan. My real goal is to build a good model and concept and duplicate it to ultimately sell a chain. However, that goal is fading every time I write a check.
Third, it’s a hub for local activity: a meeting place to create relationships, conduct meetings and have a presence. My life has been spent on the road training you with little local business activity except houses which is limited to expand your network.
Fourth, it’s the manly thing to do. I got it in my head I wanted a restaurant. It wouldn’t go away, and that’s that.
Men don’t need justifications and if we do we’ll make something up until it’s believable. It’s testosterone. It’s not our fault and the last thing men do, is what makes sense. Where’s the fun in that?
So there, I hope that justifies my actions, and I don’t want to hear any more about it. Just shut-up already.
I gotta go, it’s dinner time, and I know something ain’t right at LeGrand’s, so I’ve gotta get down there. See ya!
P.S. If you ever so much as have a thought of opening a restaurant, stick your finger in a wall socket and end it quickly.
Opened July 12, 2012
Closed June 30, 2013
May it rest in peace