I've thought about this a lot lately. I have (some) money, but not a whole lot of time. It's really hard to find reasonable direct investments for "down payment on an investment property" style money, with "rent from an investment property" expected returns. Seems all that's available at that level is more or less gambling on potential unicorn style stuff.
Or put other way - I'd love to find some great "regular" business ideas to both fund and assist in getting off the ground to the tune of $5-50k, and if successful make a few thousand a month down the road in a couple years - not millions on some future exit.
Basically I want to seed-fund/invest in/be involved in what HN calls "lifestyle business" - just a regular old sustainable business expected to grow 10% a year and comfortably employ a couple founders and employees.
Many good reasons this market doesn't exist and is "hard", but one can wish. It would feel fare more satisfying to invest money in actual hard working people with real but boring (read: low risk) business models than tossing it into the S&P500 or engaging it yet more rent-seeking by buying up small properties to turn into rentals.
It gets better - in the UK you can offset 50% of the investment directly against your income tax (up to a limit, and if the company qualifies for SEIS) + and the returns are free of capital gains tax. The issue is finding good enough "regular" business ideas/teams
I listened (again) to an Indiehackers podcast with Rob Walling this morning where he described pretty much that problem. He had "lots of" cash and "little" time to spend in building a business from scratch. What worked was to find a business he liked that wasn't making much money, but could be bought for cheap (he overpaid!) and turned into something that made money.
To respond to the "rent from investment property" concept, you can get in on investment properties at a fairly low price (IIRC 40% discounts) if you invest when builders are looking for prospective buyers. i.e., before anything is built. I looked into doing this some time ago, but the builder couldn't find enough buyers, so the property was never built.
In-process construction is pretty difficult to evaluate the value of for banks. Often times, the market will value an investment property much higher than a bank will value it, because the banks aren't always in the business of real-estate speculation. a 40% discount on the price of the finished development is sometimes more than the land may be appraised to by a bank.
It comes down to: if you are interested in real estate investment (either renting or flipping), you are going to find the property more valuable than a bank, who isn't as interested and would just auction it off if they had to own it.
In a number of situations that I have been involved in (Canada), the builder cannot get funding from traditional sources because there's no tangible asset to fund, and the builder still hasn't obtained permits from the municipality, etc (the necessary boilerplate to get going on construction). In these cases some builders will seek out a lawyer that will pool together funds from various investors and the loan rate is typically 15%-25% which makes for a nice profit, but with the knowledge that it could blow up. Once the permits are in place, then traditional funding comes a lot more readily.
>But then I don't understand why so much capital would be required just for getting permits.
There are lots of permits that only become available much later in the process. For example, an occupancy permit is only granted once the building is in a habitable state.
There are always permit delays of some kind or another because no matter how much research and planning you do, there are things that are simply unknown or that have to be changed (and thus re-permitted) at the proverbial last minute.
I very likely got the percentage wrong. It was in the 2005 timeframe that I was looking at doing this.
I remember that it was a substantial savings, but I can't say exactly where the 40% number came from. It was condos in a retirement community so the builder was making a big deal of "these tenants won't leave until they die..."
You probably need to look somewhere were that amount of money would actually makes a big difference. It just doesn't go very far in many places today. Or you need to provide some other value.
Edit: Don't know why this is objectionable. $5k is like one months living costs in many places, and sometimes one months savings. You aren't going to get much in return for that. You need to go somewhere cheaper where that kind of money can buy someone some time. Unless you can provide something else.
There are tons of regular businesses available for sale (laundromats, car washes, hotels, bars, etc.). You could buy one and hire people to run it for you.
I do agree it’s an ideal kind of business to invest in, but it seems to me there’s one major reason they’re hard to find: had I that type of business, I wouldn’t accept outside money. I’m frugal in my living, so any business that brought in a few thousand a month would be enough to live from.
I could scrape the $5K to get an idea off the ground, but if it failed I’d regret it. Simply put, it’s not money to risk.
A business loan is issued to the business, not to you as an individual. Failing to repay the loan means your business goes into collections (and possible bankruptcy), not that you as an individual suffer for it.
Please don't speak of things you know nothing about. No brand-new business would ever get a loan issued without a signature from some person or established entity who can be held liable if the business defaults.
