Whether you are a fan of the Big Mac or not, there is a lot small business owners can learn from McDonald's. Small business owners can emulate the McDonald's business model to invest in commercial real estate to make an extra income from those who pay rent. Worth more than $130 billion worldwide, the fast-food giant has earned $30 billion along from its real estate investments. Commercial real estate investments allow companies to build equity quickly and retain ownership of the building, even after deciding to relocate operations or shutter the brand.
Buying now to plan for the future
Part of McDonald's long-term success comes from the fact that it owns the land and buildings at most of its locations – and its franchisees pay it rent each month. Today's entrepreneurs can follow the lead of the golden arches and build their own wealth by purchasing their commercial property and becoming landlords themselves, rather than paying rent to somebody else.
If you ask an executive to evaluate the McDonald's restaurant business model, you might receive a detailed report on the sales of Big Macs, french fries and milkshakes. Yet, when you analyze McDonald's, think about the real estate empire they have created over the years.
As anyone who's watched the movie The Founder knows, McDonald's isn't just a fast-food chain, but also a brilliant $30 billion real estate company. Part of its long-term success comes from a simple formula that goes beyond serving consistent products across thousands of restaurants around the world. A big part of its profitability is that McDonald’s owns the land and develops the buildings at most of its locations – and its franchisees pay rent to the corporation for use of the land and business.
McDonald's success in real estate
McDonald's is well known for both its national successes and its global reach. McDonald's has more than 39,000 franchise locations around the world. The company has restaurants throughout 120 countries and opens an average of 500 to 750 new locations each year. As a franchise, the company looks to expand into its successful locations, while also tapping into new markets around the world. As of 2021, the estimated brand value of McDonald's is more than $129 billion. Each franchise costs an average of $1.5 million in startup funds to launch with net revenues around $150,000 to $175,000 annually, according to Franchise.com.
Owning commercial real estate
One of the most recognizable brands on the planet makes a lot of money by owning commercial real estate. Entrepreneurs who sell food, manufacture consumer goods, rent hotel rooms or run practically any other type of business can follow the lead of McDonald's and use commercial real estate ownership as a pathway to build their wealth and secure a better retirement. There are several strategies small business owners can use to grow their wealth with real estate and even become mini land barons.
Many entrepreneurs make a mistake and only follow a couple of paths toward wealth – for example, funding a retirement account and growing a business that they can exit someday by selling it to a third party. These are both important strategies, but many entrepreneurs forget about the wealth beneath their feet – the commercial real estate their business needs to operate. [Read related article: Cheapest Franchises to Buy]
How McDonald’s strategy can benefit your business
1. You'll stop paying rent (to other people).
One immediate benefit from buying your commercial property is that you no longer pay rent – at least not to your former landlord. Once you own the property, you will be responsible for a monthly mortgage payment, but this money will go toward building your wealth, not a landlord's.
Choosing to purchase commercial property can set your business up for success down the road. Although it may feel like a huge investment up front, commercial property is within reach for more small businesses than it may seem, often at a more affordable price. Many business owners have monthly mortgage payments that are less than what they are paying in rent – often with larger and better space. They finance their mortgages in a way that allows them to not only pay less money, but also reinvest their money into their business.
2. You'll grow an asset.
While you can't predict that commercial real estate will appreciate, it is traditionally considered to be a good investment. Commercial buildings can grow in value significantly, particularly if you hold the property for at least 10 to 20 years.
Owning the property also means that you’ll see a return on any money you put into it. When you purchase commercial real estate to grow your company, any improvements or renovations you put into the property will directly benefit you, rather than the property's owner. Maintaining commercial real estate only helps to grow its value for when it comes time to sell the property.
While there are no guarantees, many small business owners who buy their buildings end up with an enviable gain when the time comes to sell. Commercial real estate ownership is a sound and proven wealth creation strategy.
3. You have the potential for an annuity.
If you sell your business but retain ownership of the building in which it operates, you completely turn the tables and become a landlord yourself. Whoever buys your business ends up not only paying you for the value of the business but also pays rent to you as the business continues to operate. You can rely on consistent payments each month in addition to any funds that were already set aside for retirement, possibly allowing you to retire sooner than if your commercial property had been leased. Buying a property now can create an income stream that lasts into and beyond your retirement.
4. You'll have flexibility when the time comes to sell.
The ideal scenario when selling a business is to receive a cash offer that pays a fair market value for the company you have created. However, when it comes to selling a small business, sometimes it's not that clean and easy, particularly if you want to pass your business down to the next generation of your family. Perhaps your children can't afford fair market value, or you want to offer them financing that will enable them to pay over time, rather than paying for it upfront. If you own your building and receive regular rent payments as part of the purchase agreement, it will make this financial transition easier and give flexibility to the seller. Alternatively, you could sell your business and continue renting your property to that buyer – or sell the building.
Entrepreneurs pour everything they have into their businesses, but they often fail to properly plan for their retirement early enough in advance. Yes, they think about selling their business one day, but what other strategies can small business owners employ now that don't rely on exiting through a sale or buyout? The answer is owning real estate for our business – a strategy that could save your business money and help you generate wealth for many years, and even generations, to come. You can look to the real estate wisdom of the golden arches to help fund your golden years.