by Gary North
For four decades, my number-one business role model has been Harlan Sanders. Sanders had no formal education to speak of. He ran a gasoline station. It got a lot of business from travellers.
In 1930, as the Great Depression was beginning, he got an idea. Why not serve chicken to people who were passing through? So, at the age of 40, he started serving chicken dinners in his service station. (Now that's what I would call a greasy spoon — or at least fork!) This was long before fast-food restaurants. He found that people liked his chicken. He moved across the street and opened a restaurant. So far, so good. Nothing special.
In the mid-1950s, the threat of Highway 75 bypassing his small town of Corbin, Kentucky, persuaded him to sell his restaurant. He was 65. After paying his bills, all he had left was his Social Security check of $105/month — about $700 in today's money.
That's when everything changed.
He started franchising his business. Officially, he was retired. So he got in his car and started driving. He went from town to town, sealing deals with a handshake. This was 1955. You could still do business in America without lawyers. Incredible.
By 1964, nine years later, when he was 74, he had 600 restaurants. He sold his share of the business that year for $2 million. The new company took the franchise to 3,500 restaurants by 1971, when Hublein bought it for $285 million.
Should he have sold for a mere $2 million? Remember Jimmy Napier's rule: "When someone puts a million dollars in your hand, close your hand." Especially if it's worth $12 million in today's money. He made the right decision.
He became the company's spokesman until his death from leukemia in 1980, at the age of 90. That position provided a nice, steady income — better than being a Wal-Mart greeter today.
Plus, he still received Social Security!
I was in graduate school when I first heard "Col." Sanders' story. He had just sold his franchise. I was starting to earn a part-time living as a college teaching assistant. I always believed that I could do something like what he did if I wanted to. I would not have to retire.
And so. . . .
ON THE ROAD
I'm moving today. I'm on the road. I'm off to the emerald city.
I have located a little-known boom town — four of them, actually — with more real estate potential than most places in the country.
But isn't Northwest Arkansas the place for real estate? Yes, it is. But there is another factor — a career factor.
I've been writing about day cares as a business-ministry ever since 1988. I've been actively promoting them since 2002. Now I am going to build a facility of my own.
I located a state whose day care regulations are pro-business. Not many states' regulations are.
I found a region in that state where there is a flood of newcomers — I mean a tidal wave of in-migration. Construction is everywhere. That's day care country.
Almost nobody outside of the region knows about the area.
So, I drove to the area to see for myself. The signs of the boom are everywhere: a new Wal-Mart Supercenter, a new Lowe's in an unfinished shopping center.
I walked into a real estate agency, sat down with the lady assigned that day to the phone, and asked her to pull up commercial properties: undeveloped land. Everything was $150,000 an acre or higher. I expected this. A boom is in progress.
Then she said, "Here's one; Three acres. $30,000."
Did she mean $30,000 an acre? No. $30,000, total.
It had been on the market one hour.
I immediately drove over to see it. There was not even a "For Sale" sign on it yet.
I thought about it for a day. I drove back. The sign was up. That, of course, forced my hand. (There is nothing like the threat of losing something to motivate a buyer.) I made a full-price offer. I will close the deal today.
You may know my rule. When a tremendous deal pops up, I ask: "What's the barrier to entry?"
There was one. The gas company has an easement across half of the property. There are large pipelines buried under it. I can't build a permanent structure over the pipelines because the gas company reserves the right to dig up the ground to access the pipes.
This drastically reduces the commercial value of the property. But not for me. I am allowed to put a playground over the easement area. I can also pave it for a parking lot. There us plenty of room for two day care buildings on the other two acres.
A local zoning commissioner says that a day care is the highest use for the property. So, I'm taking a chance. I'm going to buy it and seek a change in the zoning.
Today, the land is owned by a church. Not for long.
My wife says it would make a great nursery — for flowers, not kids. She's right. That's a fall-back position. It's always wise to have a fall-back position.
It's on a cul-de-sac, which is a fancy way to describe a dead end. Normally, this is bad for business. But I don't need main highway access. I need only easy access. There is a stoplight at the nearest intersection: 300 feet from where the driveway will be. Parents can get in and out fast. It's close to several neighborhoods with young children. This is another good sign.
The intersection is the main drag. It is 4.8 miles south of one of America's most familiar landmarks. I'll tell you where it is in a subsequent report. The moment I describe where it is, you'll know EXACTLY where it is. You'll think, "he bought three acres for $30,000 THERE?"
Next, I went out and bought a 4-bedroom, 2-bath home for $90,000. I got a mortgage at 5.375%.
Housing prices are moving up in the area by 7% a year. I bought a repossession. It had been on the market for 150 days.
I submitted a bid. Lo and behold, another buyer had, too. I upped my bid: full purchase price. I got a call from my agent. "The seller says the offers are now on a level playing field." The seller obviously wanted an auction to begin.
I avoid real estate auctions. Emotion takes over. Don't buy or sell anything based on emotion. I told him, "The seller has my bid." The next day, I got a call back. The other bidder had concluded the same thing. I got the house.
I will close on the house the day after I close on the land.
A PERFECT BUSINESS FOR ME
I am following Steve Allen's business model. He kept doing "The Tonight Show" in the second half of 1956 while he tested the waters — airwaves — for "The Steve Allen Show."
Why am I starting an additional career at my age?
Because I want the following:
- Passive income
- High earned income (salary)
- A business that can multiply
- A business with barriers to entry
- A business where I have a big advantage
- A business that I can supervise part-time within a year of the day it opens
I recommend the same set of business criteria to anyone, at any age.
Real estate is great for passive income. My model, Rev. Nick Kozel, builds a new day care or K-12 facility every 36 months. The income generated by rents from the day care or the school pays off the mortgages. About 11 years after he signs a mortgage, it will be paid off. Then the building will pay him $50,000 to $60,000 a year. Then, 36 months later, the income from the next building starts flowing to him. Then, 36 months later. . . .
Ca-chunk, ka-chunk: the money will roll in, month by month . . . indefinitely.
A commercial building is not an annuity. It's a capital asset. It will go to his heirs.
With the deal I got on the land, and the modular construction that I will use ($40 per square foot), the rent from the day care facility should generate over 20% per annum, not counting income tax depreciation and real estate appreciation. (It's 4.8 miles from THAT?)
Meanwhile, I will be the owner of a legally separate business that will gross close to a million dollars a year. Will I receive a good salary? Will there be perks? I'll see. It depends on how well I negotiate with the owner.
I have talked about this business strategy in a report to my paid subscribers. If you want a free copy, click here.
WHAT ABOUT YOUR LOCATION?
It depends on your age. If you're under 40, find a place that is growing. Is it a place where your children may choose to live after they're out on their own? That is, does it offer opportunities for young marrieds?
If it's a popular retirement area, this may work. If the retirees have money, they will buy services. People can make money supplying these services.
A pioneer day care entrepreneur picked Naples, Florida. It's the winter retirement city for the super-rich. They hire lots of low-wage workers. The developer has built something like 9 day cares. They are filled. He has become rich by tapping into the capital of the rich — selling day care services to employees of the rich.
Go, and do thou likewise.
Is there a college or a university nearby? If so, you can become a free rider, or a dirt-cheap rider. Attend concerts, use the library, take special courses for retirees.
If there is in-migration, this is a good sign. Real estate will rise. Buy now. Buy more than one. Buy a house a year. Let the renters pay off the mortgages.
Read John Schaub's new book, Building Wealth One House at a Time. Then do what he says.
Do what he says.
Do what he says.
What if you're approaching retirement? I think the same rules apply, except that you will have to find a place where most of your children live. They won't move to you.
Look for the same sorts of places near them that match the criteria I have listed.
If the children live far apart, select the location where the family that agrees to look after you in your dotage lives.
Second choice: move closer to the family where the most grandchildren live.
I don't believe in leisure, but I believe in selling leisure-buyers what they want to buy. Consider a retirement job to retire into.
I had a high school teacher who was well informed about history. After retirement from teaching, he took groups of recent high school graduates on European tours. He was used to teenagers. Most tour guides aren't. He had advantages: he liked touring, he had lots of historical information about the areas visited, and he could communicate with a cultural subgroup that alienates most adults.
He was selling high-priced services to people with money: well-off parents of graduates in their last summer before college. He could keep the kids in line. He delivered fun, adventure, an unforgettable vacation, and supervision. He tossed in education in order to justify the parents' expense. Buyers need justification.
He converted his unique skills and interests into money. That's what I recommend to anyone who is approaching retirement. Start looking for a way to convert your knowledge into money in a new setting.
I have another friend who is a retired engineer. He works as a teacher in a Christian high school. He has no teaching certificate. A private school doesn't have to hire certified teachers in his state. So, he teaches history, government, math, and science. He also organizes a team every year for the regional robotics contest. His teams have entered three times. They have won the state competition three times and the regional competition (5 states) twice.
His salary is minimal. He is doing it to stay active.
He does well with kids.
He has a pension. He bought a large house with the money he got from the sale of his California home. He doesn't worry about money. He doesn't worry about boredom, either.
If you can earn enough money to pay your monthly bills, this frees up capital for investment. Your post-retirement job enables you to multiply your inheritance. Don't touch your capital.
Consider my plan. Some of my capital goes into a day care facility. The day care should start throwing off money within three months from opening day. I will build the first unit: 48 students. When it's filled, I'll go to a bank and borrow to add the second section of the building: 48 more students. Remember, I'm going modular. When it's filled, I'll build the third section: 72 students in two rooms. That's 168 students. There's enough land there to build a fourth building — smaller: another 48 students. With 220 students, the day care should generate $19,000 a week. I should be able to take 20% to the bottom line after expenses.
Do the math.
Then I'll build another facility in a new town. I already have targeted the town: an hour away. That's where I intend to live out my days. The boom is on there, too.
I will build the first unit of the facility with my own money. After that, the income will be enough to persuade a banker to pay for the next build-out. I will prove that I'm credit-worthy with the first investment. After that, the business will prove my point, assuming that I know what I'm doing. I'll let the parents of the students pay off my real estate.
This way, I reduce my overall capital investment. I can use borrowed money to build new facilities from then on.
Bankers are nervous about lending to someone just starting out. But if you have enough capital to fund your first venture, its cash flow will prove your reliability. Money talks.
Think about geography. Where can you match your skills with demand from people with money? Doing what?
Use your present job to launch your future career. The goal is to retire into something that you like more than what you're doing.
If you like what you're doing, what about geography?
Are you content where you are?
Most people are content with neither their geography nor their jobs. So, it's time to think about getting out. Move out, not up.
But do it in halting steps. Don't leap off the deep end.
Unless you can buy 3 acres for $30,000 just 4.8 miles from a national landmark.
February 2, 2005
Copyright © 2005 LewRockwell.com