Is it better to buy a business or a rental property?

Same $60,000, different result: about $2,116 a year left on a rental after its mortgage, and about $87,787 on a small business after loan payments, before a manager.

What does the same cash buy in each case?

We put $60,000 into three choices using the defaults in our savings calculator. The cash is 10% of a $600,000 project, so the business is the one priced at $521,739. Figures are before income tax and are not a forecast.

Why does the rental leave so little?

A 20% down payment of $60,000 only reaches a $300,000 home. The mortgage on the other $240,000 costs $19,784 a year, and the home brings in about $21,900 a year of rent left after costs, at a 7.3% cap rate. About $2,291 of the first year's payments pay down the loan. That builds equity, but it is not cash in your pocket.

Why does the business look so much better on paper?

Mostly borrowing. Your $60,000 is 10% of a $600,000 project: a $521,739 price plus $78,261 of stock, closing costs and working cash. The other $540,000 is borrowed. At the middle ask for a business this size ($500,000 to $1 million, 343 listings), the price is 2.97 years of yearly profit (the multiple: price in years of profit), so profit is $175,670. After assumed loan payments of $87,883, $87,787 is left. After a $60,000 manager, $27,787. A bigger asset earns more, and a bigger loan costs more.

The SBA sets the 10% minimum (see SBA down payment and DSCR, where DSCR is the lender's check that profit covers the loan payments). Our per-listing figures elsewhere borrow 90% of the asking price. An SBA lender counts your 10% on the whole project, so with 15% for stock, closing and working cash, a $521,739 price needs about $60,000 of cash, not $52,174.

How do the three choices compare line by line?

How much work does each take?

We have no sourced figure for rental hours. A business has customers, staff, suppliers and bills every week.

• Only 9% of 3,928 US listings state the owner's hours. The ones that do are probably the easier businesses.
• Of 228 listings an AI model read closely, 0 could run with nobody in charge.
• In 70, what stays with a person is one group of tasks, usually supplier relationships and choosing products. A few are skilled work such as teaching or legal hearings.

You can hire a manager, which the table shows. It costs much of the profit and bets that the manager will care as you would. See can you own a business without running it.

Which carries more risk?

• Rental: a vacancy, a repair or a falling local market can wipe out a thin $2,116 margin. The loan is smaller, and the asset is a building that exists whatever the tenants do.
• Business: the loan is bigger, and income depends on customers staying after the owner leaves. A lender or accountant may adjust the seller's profit figure. Only 1,809 of 3,928 US listings give a clear price and profit.
• Index fund: no work and easy to sell, but it can fall sharply in a bad year. A long-run average promises nothing about the next ten years.

So is it better to buy a business or real estate?

It depends on whether you want a job or an asset you hold. On our defaults a business produces much more cash from the same savings, if the seller's numbers hold and someone runs it.

• If you would rather not run something, the fund or a rental fits better.
• If you will run the business or pay someone to, and you can check the numbers, the business can pay more.

Test a listing before you decide with the free listing check.