Starbucks (NASDAQ: SBUX) has been one of the best performing stocks of all time. Since the company’s IPO in 1992, the stock is up 13,049%. That’s enough to turn a $1,000 investment into more than $130,000.
Almost everyone loves Starbucks. The Seattle-based company generated sales of $16.5 billion last year by selling premium drinks in upscale cafes around the world. Great coffee and nice cafes have been a big part of Starbucks’ success.
The company’s growth has turned CEO Howard Schultz into a billionaire, and made millionaires out of many early employees and investors.
Of course, it’s impossible to turn back the clock and capture the massive profits from Starbucks. The biggest profits from Starbucks stock have already been made. But there is a simple strategy for investors to hitch a ride on Starbucks’ continued success. And it doesn’t have anything to do with Starbucks stock.
It has everything to do with real estate (click here to get the details on a unique real estate opportunity).
The location of Starbucks stores has been a key factor contributing to the company’s success. Arthur Rubinfeld is a Starbucks executive who oversees new store locations. He says, “The beauty of Starbucks is our understanding of real estate site locationing. It’s an art and a science.”
Starbucks has a team dedicated to selecting new locations for stores, based on a wide range of demographic and property data. Their analytical approach has allowed the company to consistently find profitable locations. It’s also allowed Starbucks to concentrate multiple stores in close proximity.
The opening of a Starbucks in a neighborhood can actually change the neighborhood. You’ve probably noticed this first hand. After a Starbucks opens up, new restaurants, cafes and bars start popping up in the same area.
This activity has a very positive effect on real estate prices. A recent study from real estate website Zillow (NYSE: Z) looked at homes within a quarter-mile of a Starbucks location. What they found was that between 1997 and 2014, the homes located near a Starbucks increased in value by 96%. Meanwhile, the average home in the U.S. increased in value by 65%.
Interestingly, the researchers at Zillow also looked at home values near a Dunkin’ Donuts, which is owned by Dunkin’ Brands (NYSE: DNKN). Homes near a Dunkin’ Donuts rose more quickly than the average American home. But with 80% appreciation, they fell short of Starbucks.
Source: Zillow: The New Rules of Real Estate
With more than 21,000 locations around the world – including nearly 12,000 in the U.S. – Starbucks has a huge presence. It already has stores open in nearly every affluent neighborhood in America. To expand, the company is looking to open stores in neighborhoods that are experiencing redevelopment and gentrification.
These are often neighborhoods that are becoming hip, with younger people moving in. The opening of a Starbucks is a sign that real improvements to a neighborhood are underway.
The historical data suggests that a simple real estate investment strategy could deliver solid profits. Simply buy properties that are within a quarter-mile of a new Starbucks location.
Let’s consider what would have happened if you bought five properties back in 1997, and all five were located near a Starbucks. You would have paid an average of $137,000 and made a total investment of $685,000.
Today, those five properties would each be worth $269,000. And your real estate portfolio would be worth $1.3 million. Plus, you would have collected rent checks from tenants year after year.
If you see a Starbucks opening up near your home, look at the local real estate. Look for homes in close proximity. Put 20% down and buy a house or condo as a rental property. If you buy the property at a decent price, the rent will cover the mortgage payment, taxes and maintenance.
In 20 years, you will have paid off the entire property. Plus, your real estate investment will likely have doubled in value.
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