Starbucks is a vice that is widely accepted in today’s society. There’s nothing like a $5 shot of energy to start your day or get you through the 2:30 lull.
But what if, instead of spending $5 a day, you could make $450 per day from the popular coffee chain?
What Does This Investment Look Like?
According to net lease advisor, the average purchase price for a Starbucks property is $2,700,000, and let’s assume, using a good commercial real estate broker, you find one to purchase at a 6% cap rate, which equates to an annual rent of about $162,000, or $13,500 per month.
The bank will make you put down at least 20%, or $540,000, so you will need to have significant cash reserves or find a couple of partners to split the deal with you.
But let’s look at the monthly cash flow on that $540,000 down payment. At a 2.75% interest rate with a 25-year amortization, your monthly payment on your loan equates to $10,000 compared to the $13,500 you receive in rent.
So each month, you’re cash flow positive in the amount of $3,500 or a 7.77% annualized cash on cash return!
Additional Benefits To Owning Real Estate
Aside from the return you can expect, let’s talk about some additional benefits of owning this property:
- As you pay down the loan, your equity increases
- After 25 years, you will own the property debt free
- Real Estate appreciates in value, so 25 years later the property is then worth almost $5,653,200 at 3% annual appreciation
- The interest you pay on your loan is tax deductible, therefore reducing your tax liability
- Long Term Leases mean Starbucks continues to pay rent without vacancy
- 10% Rent increases are typical every 5 years
So let’s take all of this into consideration if we expect to own this property for 25 years, keeping Starbucks as a tenant with 10% rent increases every 5 years.
- Total Rent For The Period: $4,945,131
- Proceeds From The Sale of Property: $5,653,200
- Tax Savings & Depreciation Dependent On Your Income
- Total Loan Payments: $2,989,294
- Initial Down Payment: $540,000
Return on Investment:
Your final ROI is $7,069,037 or a 1,309% return. Even over the course of 25 years, where else are you going to find a return like that?
Summary: Buy Starbucks Real Estate
So if you’re in a position to purchase commercial real estate, it can be one of the most rewarding investments, especially if you expand your time horizon.
Sure, a Starbucks is going to be one of the most expensive commercial investments you can make, but consider starting with a local property in your market that has great potential. You can find a good loan and save money on realtor fees to make sure you get the best deal possible.
Once you build up your income and net worth, graduate to a larger credit tenant like Starbucks or Chick-Fil-A and leave a legacy your children will love you for!
About the Author:
Michael founded Pursuit of Passive Income with the goal of helping its readers achieve financial freedom and create a life they love. He is living proof that every failure is just one step closer to success, having started and shuttered many failed businesses. Michael now makes a full time income from Pursuit of Passive Income and strives to help others create passive income streams of their own. Read more about Michael’s Story Here!