A savvy real estate investment brings increased valuation and reduced overhead costs to our net worth.
By Dan Klepper, co-owner of Sawaya Fleet Services in Denver
This OMG! ROI series evaluates the best return on investment options to support your needs and goals.
In 1989, my business partner Dennis Poirier and I considered acquiring approximately
1 acre of land for $400,000. It included a 16,000-square-foot building and an eroding paint and body repair facility.
Although Sawaya Fleet Services was established in 1952, the previous owner generated only $150,000 in annual revenue. However, we were looking to build equity at the time, so we had an interest in growing the operation through a real estate investment. This meant renting and leasing weren’t part of the equation.
If given the opportunity, I’d rather purchase property outright. Land values almost always increase over time. Sure, ups and downs are inevitable in the market, but real estate usually appreciates in the long run.
The former owner struggled to find a buyer. The business had deteriorated, and he was down to three employees — so he was a motivated seller. We made him the following offer: If he financed the lot and company, we would negotiate a real estate investment where we wouldn’t have to make a mortgage payment in the first six months. He agreed to the proposal, and it turned out to be a win-win for both parties. We had a chance to succeed, and he did as well.
To start, we funded our mortgage with a 20-year note. Dennis and I then renewed the loan in 2001 and acquired an adjacent acre from the city for $100,000. The real estate investment significantly expanded our parking area and added value to the location. We ended up grating and fencing it in for vehicle overflow.
We refinanced a second time in 2006 and remodeled our office. Our company also obtained a pre-owned, 60-foot, state-of-the-art, side downdraft paint booth for $100,000 from the United States Postal Service. The heated unit ensures consistent temperatures, which eliminate guesswork and result in first-rate jobs.
Eventually, in 2013, we were able to pay off all of the debt in one lump sum.
If you can’t get through the tough times, you probably don’t have what it takes to be a shop owner.
Once we made the decision to purchase the facility and property, we never looked back. Obviously, there were periods of cash flow shortages, but we did what we had to do as every new venture struggles. Whether you utilize creative financing, raise labor rates or make more calls to bring in business, we discovered that where there’s a will, there’s a way.
You have to maintain a positive attitude and remain determined that you’re not going to fail. If you can’t get through the tough times, you probably don’t have what it takes to be a shop owner. Running an operation is not for the weak at heart!
In the last year or so, the real estate value in Colorado skyrocketed. In fact, it’s doubled. Since we now have the land paid off, it reduces the pressure of making monthly payments. In addition, when you minimize costs and continue aggressive sales and marketing, you’re able to flourish regardless of the economic conditions.
Every situation is unique. In 1989, it was a buyer’s game, so we were presented with opportunities for real estate investment that may or may not exist today. However, if you utilize the following six tips as guidelines for general shop practices, you’ll lay the foundation for financial gain:
1. Know your market and find a niche.
Where are you going to make the most impact in your area? Where are the shortages — tree services, refrigeration repair and garbage transports or lawn care, plumbing and electrical companies? We wanted to pursue fleet work from Penske, UPS, Ryder, FedEx and Staples, where they want their vehicles to be regularly maintained and sharp-looking. This was a sector we could integrate into our business without any additional overhead issues. Plus, we were in a location where there was an abundance of truck traffic, so it was a good place for us to be.
2. Be realistic about your capabilities.
You can’t do everything, so know your strengths. It allows you to have more flexibility and options.
You can’t do everything, so know your strengths. It allows you to have more flexibility and options. For example, we don’t operate on frames and transmissions or sell tires. Instead, we do mechanical repairs, paint and body, engine overhauls and brake and clutch jobs — along with fleet care [for more tips, read 4 New Revenue Streams That Could Jumpstart Your Profit Margins]. We have the people and skills to not only perform these projects but do them well, and we focus on developing good, if not great, relationships with our customers.
3. Recruit well.
I look for members who possess stability. I don’t want to bring someone on board who has worked at 10 places in 10 years. When you find quality individuals, pay them fairly, so they don’t continue looking for employment after you hire them.
4. Use unconventional thinking to establish partnerships.
We put together a summer grilling event at our facility, because no one else does it in our area. The function takes a lot of effort to coordinate, but the community enjoys it.
5. Do your due diligence.
Take the risk out of the equation. Base your decisions on sound facts. If you seek fleet contracts, find out as much as you can about your clients. Check with the Better Business Bureau and Yelp!. Do the companies have good reviews? Do they pay on time?
6. Pursue testimonials.
We request letters of recommendation from our customers. We want people to tell us what they like about our services. We also post a video on our website that spotlights why folks have done business with us for more than 20 years. It’s the little things that make a big difference.
For tips on recruiting well and testimonials, run a diagnostic on your business for free using the Shop Analysis Tool.
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