When buying a piece of real estate most investors look for properties with tenants . Listen to learn how tenants may cause a disadvantage for the buyer in real estate and business.
Hi, Jay Massey with the CashFlowDiary.com, with another quick tip about real estate and business.
Today we’re going to talk about buying a business.
One of the things to consider or many things actually to consider but one of them to consider when you’re buying a business is the state or condition that it’s in when you’re beginning to evaluate that business.
Here’s the simple, simple rule of thumb that you can use really, really fast, that way you can understand when you should buy a business.
You buy a business when it is operating at its worst. You ever heard the phrase buy low and then, therefore, what do you do? You sell high, right? You want to sell high, buy low. How did you do that, what is a business look like when it is operating and you’re able to buy at a low price.
One of the great things about economic upheaval is businesses tend to operate at a low efficiency and become a very targetable for acquisition because they’re unable to produce the types of income that they’re used to.
So for example, let’s take a simple house. Which house do you think has more value in the market place? One that is empty? Or one that has the tenant living in it?
Exactly, one that is empty. So this is the house you would want to buy, this would be the house you would want to sell. Oftentimes, when you’re looking to buy a business, we think we just want to buy no headaches and no problems. But the whole point of you becoming a business owner especially as it relates to real estate is to solve the problem now.
Now sometimes, there could be a problem with the tenant so that could still represent buying low but one of the ways that definitely always buy low and sell high is to make sure that when you’re purchasing that business and you’re looking for that business or business opportunity, is to make sure that it is operating as poorly as humanly possible at the time because what you’re going to do is you’re going to come in and be able to improve the value and therefore, be able to operate it more profitably and either improve your balance sheet or improve the cash flow, or be able then hopefully sometimes be able to actually sell it off to another investor or to another entity that has the ability to continue to run it if that’s not your game.
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