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Investment Comparison: Real Estate vs. Subway Franchise

Analyzing the financial benefits of investing $50,000 in a rental property or a Subway franchise over a 10-year period, considering factors such as cash flow, appreciation, tax savings, and passive vs. active investment.

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Investment Comparison: Real Estate vs. Subway Franchise

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  1. Team #7 Rick Koutzoukis – Organizer, Excel Techie Roel Delos Reyes – Techie, Information Gathering Vu Anh Tran – Techie, Information Gathering Brian Hyunwoo Kim - Summarizer

  2. Scenario • 26 year old engineer making $62,000 annually • Has $50,000 to invest • Either wants to buy a house and rent it out or become a Subway Franchise owner • MARR - 15% • Time period – 10 years • Mortgage Loan – 30 year fixed, 5.23% • Business Loan – 30 year fixed, 6.75%

  3. Real Estate • Price - $400,000 • Down Payment – $50,000 (12.5%) • Monthly Payment - $1,976.75 • Monthly Income –$2,100 • Estimated Annual Appreciation – 8%

  4. Subway Sandwiches • Price - $280,000 • Down Payment – $50,000 (23.4%) • Royalty Fees – 8% • Advertising Fees – 4.5% • Annual Sales - $600,000

  5. Factors to Consider • Cash Flow • Appreciation • Depreciation • Tax Savings • Passive or Active Investment

  6. House Maintenance First Year Rent Rent Increase Appreciation Rate Subway Managers Fee Monthly Sales Equipment Cost Rent Payment Sensitivity Analysis Factors

  7. House Sensitivity Analysis

  8. House Sensitivity Analysis

  9. Subway Sensitivity Analysis

  10. Subway Sensitivity Analysis

  11. House - By examining equation of graphs we can see that appreciation rate is the biggest factor - All factors did not affect ROR drastically -Always stayed within 10% of the default of 20.78% Subway - Varying the costs (manager fee and rent) made the biggest difference, changing benefits had significantly less effect - ROR varied widely from 0% to 130% Sensitivity Analysis Summary

  12. Summary • Using default sensitivity analysis parameters for both scenarios: ROR for house = 20.78% ROR for Subway = 49.22% MARR = 15% ΔROR = 6% ΔROR < MARR, choose lower cost alternative

  13. Resources • Internet • Dan Kaatz – Real Estate Broker • John Koutzoukis – Business Owner • Jim Nelson – Subway owner • Dr. Rosenkrantz – Financial Expert

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