Real Estate Rental Lease: Fill & Download for Free

McDonald’s Founder Ray Kroc/ CFO, Harry J Sonnenburg: “we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”Super strategy.Franchising - is the buzzword of the century in the fast food business; a model by which fast food chains expand fast and formidable by using the money of small investors. Brilliant: investors money, not the company (franchisor).McDonald's is the master of the universe for the franchisees (investors), in other words, McDonald’s Corporation is the master landlord that all franchisees will have to kowtow to. In more words: Mcdonald's buys the properties then leases them out - at huge markups, of course. In addition to that regular rental/lease income, McDonald's will also take a percentage of each shop’s gross sales. Double brilliance!!McDonald’s makes its money on real estate through two methods:1. McDonald's real estate subsidiary function - buy and sell hot properties (+land) as well as collecting rents on each of its franchised locations.2. McDonald’s are in 100+ countries over 36,000 locations worldwide (McDonald's corporation directly owns and operates only 15% - rest are franchisee-operated.)It costs helluva lot of money to run your own store compared to just collect cash (fees, rent, etc). McDonald's banks over 80% of all franchise-generated revenue; they get only 16% of company-operated restaurants. Who is the bigger contributor? Over 80% of every dollar in profit is generated by a franchisee.Below: Kuala Lumpur new neighborhood of retail shops and offices.Same corner shoplot taken over by McDonald’s franchise system - high visibility location, corner unit, matured neighborhood = premium rental rate.

It’s more of a group of things that I’ve noticed investors screw up. If you do one, you often do all of these:Overpaying for the property originally.Over spending on rehab, just to potentially lease it out.Over estimating the rental income.And not having a large enough reserve fund for vacancies and repairs.

Absolutely! One of the best decisions my wife and I ever made was to buy rental properties.We started with industrial property (I was in the industrial real business then) and then branched out into other types of real estate.I think its important for those looking at buying their first rental property to understand that not all of the wealth created from real estate ownership is realized in cash flow. So when you look at property that has a cap rate of say 5% that is not all the profit in the property. Some of the 'unrealized' gain will come in the form of appreciation. The appreciation is what adds up over time. {There is no guarantee of appreciation, but historically property prices have a baseline for appreciation growth}.For those who are more familiar with technology, I think the example of Microsoft would be a good comparison of equity Vs cash flow. The majority of stock holders in Microsoft over the years have only made their money on stock appreciation. This appreciation was/is not guaranteed, and had stock holders relied only on dividends then there would have been a lot of empty stockings on Xmas mornings.Simplified example: Five unit apartment complex at $125k per unit X 3% appreciation growth per year = $79k in unrealized gain, That's on top of the $125k in rental income based on the 5% cap rate over that same five year period.Speaking of time, real estate is not a quick flip profit type of business. Real estate investing takes time and it will require some of your attention. By attention I don't mean the plunging of toilets, but rather in making sure your investment is cared for and remains competitive (rents and rental/leasing). You can hire property managers and leasing agents to do this work for you, but as in any investment the more people employed means less income.You would just need to account for these additional expenses when calculating your expected return.