What are the hidden costs one should watch out for when looking to buy a route. I know of payroll, payroll taxes and workmens comp, truck repair&maintenance, parking & tolls, licenses, gov & business fees, fuel, ins, uniforms, scanners, taxes, meals, general supplies, legal n acctg fees. Anything else to be aware of?
Hidden costs in owning fedex routes
- Thread starter dssm
- Start date
Cactus
Just telling it like it is
Training new people to the cover huge turnover. Add it all up and ask you yourself......Will there be enough money coming in to cover all this? The guys here tried to tell you that the deal in reality is no where near as attractive as it appears on the surface. But then again if you insist on throwing your money away on something as fluid and uncertain as this is go ahead. No one's stopping you.
barnyard
KTM rider
I would be curious to know what the turnover really is. Training and reduced productivity of noobs could be huge. I would also imagine that a noob would be harder on vehicles too.
Besides maintenance costs, I would also add a capital savings to the budget. Trucks have to be replaced/rebuilt eventually. Add in rental costs if you cannot street one, unless you have a spare truck.
Good point trucks are one of the fastest depreciating pieces of equipment known to the US economy. Wonder if he's got that factored in as well?
10% would be assuming a full time manager who is also a backup driver?
Depreciation is a cost that can bite you if/when you sell or lose your contract. When you buy the business or a new vehicle for it, the vehicle(s) may be 50% of the value of the business. Depreciation will save you on taxes, but also decrease the value of the business. So if you depreciate the equipment on your taxes, it kind of falsely inflates your income. You should really set aside the amount you depreciate when calculating real income. Real income is more complicated that just cash flow.
Yes.
If you buy a rental property for $200k with 25% down($50,000) and the rent just covers the mortgage and expenses, no positive cash flow, you still have two things working for you. You have the tenant paying an average of $6000 per year towards the value, and you have an average appreciation of 3% or another $6000+ with that amount going up every year. So on a $50k investment, you are earning about $12k per year, or a 24% return.
Ba
Bacha. I wonder how many years have you been in the business, how many routes do you have and where are you geographical. I'm curious because you are very vocal on this site and only have negative things to say. Can I ask why you are still in the business when its that horrible?
Dmac. Sorry but those figures are more inflated than what bizbuysell for fedex routes. If you can show me a property getting those figures I'll invest in a minute. No rental investment property yields that much. Avg is 6 to 8% and thats only in the metro areas.
10% would be best case scenario. And that's before accounting for the decreasing value of the assets. 5 trucks are going to decrease in value more in a pure dollar amount than inflation will add to the value of the business. 5 Vehicles will drop maybe $15k-$20k per year average but the value of the business may go up only $10,000, more or less. So when you cash out in a few years, unless you put the depreciation of the vehicles into an account. Your business is actually losing value. The more valuable the vehicles when you start, the more you lose. You are better off buying a service area with older, but very serviceable vehicles than paying more for an area with new vehicles.
Thank y
Thank you. Very helpful and useful advise. Very much appreciated
BS- I bought a rental a few years ago with less than 25% down, and got all the appreciation plus my loan balance was lower when I sold 3 years later. Those numbers are not inflated at all. You don't seem to understand leverage- using other people's money to buy an appreciating asset.
If you don't understand the math of it, then investing in real estate isn't for you.
You may be thinking positive cash flow. My figures are for property with net zero cash flow- just the value of leveraging your money. Positive cash flow is a bonus.
If you can borrow money(leverage) to buy the routes, and still have a positive cash flow, it changes the numbers.
Also, in general, when you say 6-8% return, that includes paying a management fee of around 8.5% of gross incomeas a fixed cost in those national figures. If you manage only a few properties, and treat it as a job, you can save that 8.5%.
I owned rental for years, and ALWAYS came out ahead. Even with the 2006 crash, I had some difficulties, but also opportunities because rents didn;t decline like the property values. I had to hold onto one property for about 7 years longer than I liked, but was making some cash flow the whole time.
Last edited:
I can show you a half dozen properties where I live that sell for $120-$140k that rent for $800-$1000 a month. Take just one- $140k, $35k down, PITI around $725. And if the owner will carry a small second mtg, your net gain after a long enough period is even better. Sell in ten years, and you would easily more than double your initial investment.
I personally bought a small apt complex with $34k down, poured the positive cash flow back into it, and that $34k was $140k in 4 years, before capital gains taxes. I did put a lot of labor into it- maybe 500 hours over the four years.
First off these are not even in the realm of like investments. Second If you want all things calculated for expenses on anything possible for FedEx routes you need to add a lot for real estate in terms of property taxes, maintenance, HOA, bad tenants or evictions, and lost rents for move outs.
You can make decent money in the FedEx game, you can lose a lot in the FedEx game, you will have a lot of stress more than likely. When it runs good there are few things better, when it runs bad there are few things worse. I tripled my investment in 3 years with my routes because of leveraged money (little more than doubled from the sale price that I paid to what I sold for, after accounting for debt takeover from new trucks). If you are in the right areas you can make a lot of money but it probably won't be easy and don't run it absentee.
Also I am on the other side of the table in regards to new or old trucks. I had some very piss poor manual tranny internationals that cost me a fortune to keep up on. I was making the most after I brought in 3 brand new 1200s even accounting for over $3k a month for the payments compared to keeping the 1998, 2000, and 2 2001s going
