The Essence of Entrepreneurship

The Essence of Entrepreneurship

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Fostering Business Solutions, Inc.

By Antonette Hudak

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When you go to a coffee shop, movie theatre, boutique or restaurant. You normally aren’t thinking about what it takes to give you that experience. You arrive, pay, make your memories and might go back.

I just began working at a restaurant part-time. You begin to see what goes on behind the scenes of the establishment. The vision, preparation, and attention to detail that makes a customer want to come back.

There’s a quote that comes to mind, “A great entrepreneur gives people what they want before they ask for it.”

My experience on the first day was feeling welcomed. The restaurant opens at 5:30 pm and everyone is expected to get there by 4:30pm. The employees have a “family” meal together. Everyone talks and sits around a table together.

After the meal concludes, everyone gets together with the chef to try the specials. He explains every ingredient, where it comes from, and what the night’s dishes are. He talks about the sauces, nuts, spices and vegetables. The menu goes according to what’s in season. The chef buys the produce himself, usually from Amish Farmers in the area.  My job as a hostess is to call all the reservations for the next couple of days to confirm their bookings. I am to keep a log of cancellations and seating walk-ins. Each reservation is pre-set with a table, time, name, and how many people will be in the party. It’s also the hostess’s job to walk around and mark the status of each seated table and if they are on their appetizers, entrees, or desert.This is to keep the waiters up to date on what is going on so that they are always in the know.

Sometimes VIPS arrive that need extra attention and complimentary items like a bottle of wine. The mood is set with lighthearted music in the background. The environment is always alive.  Rustic at home feel, white brick walls. The chef inspects every dish because presentation counts before a customer is served.

Thinking of this business and how it all came together makes me realize how much work, vision, and details goes into it. A consumer needs reasons to pick a place.  Why would they have dinner here? Is it how aesthetically pleasing it is, the organic food, incredible service, good music, an opportunity to enjoy oneself or a mixture of them all?

It takes people, training, leadership and lots of planning.

This is what I believe is the essence of entrepreneurship. The essence of attracting a crowd. Attracting a certain clientele that expects a specific experience. It was all planned. However, the planning did not stop at the opening of the restaurant; it continued to grow, like all great businesses. Entrepreneurship takes artistry, creativity and planning. Perfecting your craft. With failure and experience. Continuously discovering with trial and error. Creating a brand the entrepreneur and consumers are passionate about. It doesn’t come overnight. It takes practice, failing, learning, and interchanging roles. Going into it for the right reasons and using practicality. Most importantly, organizing people and taking the time to properly train them.

As an aspiring entrepreneur. What to study can be your favorite coffee shop, restaurant, bar, film or business of interest. The memories and joy they gave you. Pay attention. With that said, in your own business, you can see what you can offer to the world. Service the world. Giving the customer what they want before they ask for it.

About the Author: 

Antonette Hudak is an entrepreneur working in the entertainment and hospitality industries. She is also a writer and actress. Some of her achievements include writing, directing, and acting in the play “How to Love A Drug Addict” which is now being created into a short film, “Failure isn’t something you should fear, it’s something to embrace” Published by Thought Catalog February 2016, and she is a Reservations Manager for the Nolitan Hotel, a luxury boutique hotel in New York City.

 

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Calculating the ROI of a Rental Property

Calculating the ROI of a Rental Property
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Along with the management consulting and social media work, I also invest in residential rental properties. It is important to know how to calculate if a property will be profitable and what the return on investment (ROI) will be. The first thing you should know is if you are Value or Cash Flow investing.

Value Investing is when the primary purpose of purchasing a property is to hold it with the hope that the value of the property will increase. Purchasing a property in a high growth area for $100k and selling it a few years later for $500k would be an example of this. With these properties, it is okay to just break even with rental income.

Cash Flow Investing is when the primary purpose of purchasing the property is to make money through rental income. All costs considered, your rental income should be high enough that you can consider it income.

Of course, the ideal case would be that you find a property that falls within both parameters. That can be hard depending on where you are located and how much capital you have.

For the purpose of this post, we will be focusing on Cash Flow Investing.

Now let’s get into calculating if a property is profitable if you are financing the property.

Firstly, let’s go over all of the costs that you have to consider initially and then on an ongoing monthly basis of owning a rental property.

Out of Pocket Cost:

Initially, you would have to consider how much money you have to put down to purchase the property. Usually, it can be anywhere from 5-20% depending on your credit and the type of property. Let’s say you are purchasing a property that is worth $150,000 and have to put down 20% ($30,000). You also have to consider closing costs. For this example, closing costs are $10,000 for calculation purposes. Another cost that you usually have to pay that most people don’t consider is the following year’s property taxes. Say that property taxes for this property are $10,000 per year.

In total, the initial cost of purchasing this property will be $50,000. Meaning you will need this cash on hand right off the bat to purchase this property.

EDIT: I forgot to add Inspection costs. I have seen them range from $500-$2,000 depending on the property size and location. For this blog post, I will keep the math the same, but be aware that it is usually mandatory to have an inspection done.

Ongoing costs:

Now it is time to calculate what your costs will be on a monthly basis. Continuing with the example from above, we will have to finance $120,000. People usually pick between financing over 15 or 30 years. We will finance over 30 years here. For investment properties, the interest rate is around 7% or 8%. We will use 8% to be conservative. You can use many online tools to calculate your monthly mortgage costs. Google search Mortgage calculator.

The monthly mortgage cost alone will be $880.52 per month on the $120,000 over 30 years at an 8% interest rate.

Next, you will have to also factor in the property taxes for the next year into your calculation as well as a Landlord Insurance Policy. Our property taxes for this property is $10,000 and let’s say the insurance policy is $2,000 per year.

The total monthly cost of this property is $1,880.52.

Other hidden costs to consider:

-In some cases, if you put less than 20% down you will be charged what is called PMI. PMI stands for Private Mortgage Insurance and you will have to add this to the monthly mortgage cost if needed. I have seen it being anywhere between $150-$300 per month.

Common Charges: Some properties charge common charges to maintain the property (cutting the grass, snow removal, pools, etc.). These costs will also need to be considered on a monthly basis. The price of common charges really depends on the type of property and where it is located.

Is it profitable for Cash Flow Investing:

Now its time to do some research on the average rental costs in the area. Look on Zillow and other sites like it to see what the rental prices are for properties on the same block/building and in nearby locations.

If the average rental is $2,400 in the area, this may be a good Cash Flow property.

If it is $1,900 or below, I would not consider it for cash flow.

I usually only choose properties that can generate a monthly return of $600 or more, but it is based on personal preference.

Calculating simple ROI:

For rental properties that you have financed, it is good to calculate your return on investment.

For the purposes of this example, our monthly cash flow from the property is $500 per month (rental income minus ongoing monthly charges). This would result in an annual return of $6,000 ($500 x 12 months) from rental income after all costs.

If the out of pocket cost (initial cost) of purchasing the property is still $50,000, our ROI will be calculated as follows:

$6,000 (annual cash flow) ÷ $50,000 = 12% ROI

This formula can get very complex as some people use an amortization table to also factor in the principal (mortgage) paydown. I would say that a 12% simple ROI is very good. It would take roughly 8 years to break even on your initial investment ($50k/$6k).

I would also suggest reading the book HOLD: How to find, buy and, rent houses for wealth by Steve Chader if you are considering residential real estate investments.

You can also find other great books to read in one of my older posts called Essential Business Reads.

I hope you guys enjoyed this post. More will be coming soon! Until next time…

 

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Essential Business Reads

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Welcome back, it’s time for another FBS blog post! Listed below are a few of my favorite business books (in no particular order). These books have provided me with inspiration, knowledge, and positivity. All things that I believe are essential in anyone’s life. Although these books are business related, I truly believe that anyone can read them and learn a lot.

 

First on the list is The E-Myth Revisited  by Michael E. Gerber. Gerber speaks about why most small businesses fail and what to do about it. The author explains how every business needs three skill sets: 1. The entrepreneur (the dreamer and visionary), 2. The manager (the organizer) and 3. The technician (the worker). The technicians, who love what they do, decides to start a company on their own instead of making someone else rich (great!). Now the reason that this business will most likely fail is due to micromanaging by the technician (not so great). They will want to make sure everything is done the way they have always done it. Gerber explains the issue here and expands on what corrective action should be taken. It is a great book for anyone thinking of opening his or her own business. The E-Myth will teach you lessons that you would most likely learn the hard way.
The 4 Hour Workweek: Escape the 9-5, Live Anywhere, and Join the New Rich (Expanded and Updated) by Timothy Ferriss (what a title) may catch you off guard as you read it. Some of the things he preaches seem a bit outlandish at first, but will eventually strike a cord. The book is split into four sections: 1. Defining your goal and figuring out what you really want (and for those of you who cannot decide, he helps you figure it out), 2. Eliminate your distractions by learning how to be effective instead of just efficient, 3. Automate your cash flow, resulting in an increase of income and finally, 4. Liberate yourself by increasing mobility. He speaks about how he went from monotonously working for someone else for 40 hours a week to starting his own business and working 80 hours a week. The 4 Hour Workweek tells you the story of how he eventually transformed his life to working just a few hours a week while also making money and enjoying life. This book will inspire you to take charge of your life. If you work at a deadbeat job that doesn’t appreciate your work or if you are struggling to live your life while running your own business, The 4 Hour Workweek is for you.
Rich Dad Poor Dad by Robert Kiyosaki is one of the first business books I ever heard about. A friend introduced it to me when I was unsure of where my professional life would take me after college. It is the story of the author and a comparison of his “rich dad” and “poor dad.” It just so happens that his biological father, who has a doctorate, went to Ivy League universities, believes in working hard and saving money was the “poor dad.” Who would have thought? All the while, his “rich dad” (his friend’s father) who dropped out of school in the eighth grade builds an entrepreneurial empire by using his financial literacy and street smarts. Kiyosaki walks you through his life experiences to offer you a new perspective. Some people have criticized him about whether he was completely truthful in his book, but his message is loud and clear no matter what. I still believe that this book is a must read for anyone.
Black Swan: The Impact of the Highly Improbable. No, this is not the movie with Natalie Portman and Mila Kunis. This is a book by Nassim Nicholas Taleb, the essayist, scholar, statistician and risk analyst. The book dives into how unpredictable severe events are and how people underestimate their significance. These events are referred to as Black Swans. The three attributes that define Black Swan events are those that are irregular, have an extreme impact, and are eventually explainable (only in hindsight). Taleb’s writing style is very smooth and easy to read. You really feel like you are there with him when he explains some of his life stories. The Sunday Times even placed the Black Swan among the 12 most influential books after WWII.
Hold: How to Find, Buy, and Rent Houses for Wealth by Steve Chader is my usual real estate plug-in. Hold is the opposite of a get rich quick book, rather it focus’ on how one can create a lifetime of wealth through rental real estate investments. The book also comes along with downloadable content that puts the book into better perspective. As some of you know, along with business consulting, I have been heavily involved with rental real estate properties for years. This book has played an important role in my recent real estate knowledge while also continuing to offer inspiration.
Crucial Conversations: Tools for Talking When Stakes Are High by Kerry Patterson, Joseph Grenny, Al Switzler and Ron McMillan explains a skill that is very important in business, communication. In work settings, it is not uncommon that you will come across a number of critical conversations. Whether this be about a raise, a business deal or even heated conversations with a business partner it is vital for you to know how to approach the subject. I have experienced instances at my old jobs where tensions were high due to deadlines and cooler minds have prevailed. This book goes over certain techniques that will allow you to have a leg up in these instances.

This will likely be the beginning of a series as I have learned so many things from business books. I chose the above reads for this post as they cover a variety of topics. It is important to read inspirational books that spread positivity when working at the conventional job or owning your own business. They will motivate you to do better by providing a new perspective. Who knows, a book can be the final push that will change your life forever.

I will now leave you with a quote that I like from Oscar Wilde,

 

 “Anyone who lives within their means suffers from a lack of imagination.