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?
We love real estate as a top source of passive income, and here is everything you need to know about making your first commercial real estate investment.
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
Investment Summary
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.
Income:
- Total Rent For The Period: $4,945,131
- Proceeds From The Sale of Property: $5,653,200
- Tax Savings & Depreciation Dependent On Your Income
Expenses:
- 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!