Dentaltown October 2019 - 14

howard speaks
column

Real Success in Real Estate
There's been a lot in the news recently about WeWork
delaying its planned IPO, which inspired me to talk
about real estate.
My journey in real estate began when I was
about 10 years old and my father got involved
in a restaurant franchise. And because of
how franchises worked back then-and as
I'll discuss a bit later, still today as well-he
was very aware of how he was not holding
all the cards going forward.
Everybody thinks that Ray Kroc started a
McDonald's hamburger business, but what he
really started was a heck of a genius real estate
model. Franchise costs vary from small towns to
metro downtowns because of the cost of land, but
let's say he buys a nice acre on the corner of First Street
and Main for $500,000, and it takes another $500,000
to build and outfit a 4,000-square-foot restaurant on
it, for a total cost of $1 million.
If someone comes in and buys that McDonald's
franchise for $1 million, McDonald's owns that land
and building free and clear and signs them to a 10-,
20- or 30-year rental agreement. Every month, tens
of thousands of franchisees pay McDonald's to rent
this facility, where the land and building is already
paid for. It's a real estate business that happens to have
restaurants on its sites.

Who's the best tenant
when times are tight?
WeWork thought that an IPO would be possible
this year because times are great: The co-working space
company occupies high-cost downtown real estate in the
biggest cities around the world. But
potential investors were concerned
about WeWork's susceptibility to
one of the biggest problems with

real estate: What happens in the inevitable downturn,
when its tenants don't renew their rates? When times go
down, WeWork could be the largest real estate company
in the world with the most vacancies in some of the
highest-dollar cities in the world.
In real estate, the only variables are: (1) What does
it cost me to own this for a month? (2) And what can
I rent it for? Price doesn't matter; it's always the terms.
For example, I could buy a car for $1 billion if the terms
were $1 a month for a billion months, because I could
rent that car out to an Uber or Lyft driver and make
$500 a month and make a gazillion percent return on
my investment.
Amateurs are always trying to negotiate the best
price for their house, and don't realize that if they would
have gotten the 30-year loan down to a 15-year loan for
the same interest rate as the 30-year loan, they could've
bought their house for half the price.

What topics would you like Howard to tackle?
What should Dr. Howard Farran talk about in his next "Howard Speaks" column?
Visit dentaltown.com/magazine and tell us what you think his next focus should
be in the comments section under this article.

by Howard Farran, DDS, MBA, publisher, Dentaltown magazine

14

OCTOBER 2019 // dentaltown.com
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Dentaltown October 2019

Table of Contents for the Digital Edition of Dentaltown October 2019
