No one is more passionate about coffee than 35-year-old Tremaine Wright. Last March, she opened a coffee shop in her Bedford-Stuyvesant neighborhood in Brooklyn, New York. Hard work and dedication played a role, but her dream wouldn’t have been possible without thoughtful real estate investment decisions.
It all began in 1998 when Wright was in her second year of law school at the University of Chicago. Her grandfather, who had been living alone for three years, decided to leave New York and move into an assisted living community in Pennsylvania near other relatives. But he wanted to keep the Brooklyn brownstone he had purchased in the 1950s for $20,000 in the family. There was one problem: Who would take over the mortgage payments?
“I volunteered to take over the payments and the care of the house,” says Wright. “I wanted to help.” Her grandfather had refinanced twice to cover general household expenses, so the mortgage balance was $140,000. Since Wright was still in school and had no income, her mother, Gwendolyn, agreed to help out and make the monthly mortgage payments of $1,100. Wright took over after she graduated in 1999 and snagged a job at a corporate law firm earning $90,000.
The three-story brownstone, now worth $700,000, has four bedrooms and three bathrooms. “I was like ‘Wow, I own a house,’?” recalls Wright. She didn’t need all that space, so she invited some family members to move in to the top floor, and a friend from church took over the second. The tenants paid $700 each, about half the cost of maintenance and mortgage. Wright lived on the ground floor.
The story would have ended there if it hadn’t been for Wright’s coffee habit. The recovering coffee-holic admits to drinking up to 10 cups a day as a student. She noticed that her neighborhood lacked gathering space. Few area restaurants had seating, and there were almost no bars or coffee houses. “Every time I wanted to meet with friends, it had to be in the house or outside of the neighborhood,” says Wright.
So she considered opening a coffee shop and began educating herself. Wright subscribed to coffee trade magazines and attended coffee and food shows in Atlanta and Washington, D.C. She also enrolled in a one-day course at a local university entitled “How to Operate a Coffee Bar or Tea House.” In addition, Wright entered Brooklyn Public Library’s PowerUp! Business Plan Writing Competition and won an honorable mention prize of $3,000. As she educated herself about the coffee retail business, she began to rein in costs for
lifestyle extras so she could save for startup costs. Excellent money management, in addition to a $35,000 salary increase shortly after she joined the law firm, enabled her to sock away $100,000 in savings.When Wright began to look for commercial space to rent in 2003, she calculated that her startup costs would be around $150,000, so she needed to have an additional $60,000 at the ready just in case she found a rental property she liked and needed to put a deposit down. Wright tapped the equity in her brownstone and opened a $60,000 equity line of credit on an extended 30-year loan at a 6.75% interest rate. She didn’t want to take out a small business loan since she didn’t know exactly when her shop would be open for business. “I would have been locked into paying back the loan before I had money coming in,” says Wright, who held the cash in a money market savings account yielding 4%.
After several rent negotiations went sour, Wright decided to buy a second brownstone that offered commercial space on the ground floor. “It didn’t make sense for me to put so much money in just to be subjected to the whims of a greedy landlord,” says Wright. She discovered that the Neighborhood Housing Services
of New York City, a nonprofit that offers affordable housing, was holding a lottery for five mixed-use buildings in the area. Soon after submitting her application, she found out that she was one of the lucky winners. Wright purchased a newly renovated building with two apartments and one commercial space for $560,000, but she received an $80,000 subsidy, a grant from NHS’ Store Work Program that reduced the cost to $480,000. She took out a 30-year $475,000 mortgage at 7%. “Having money ready to go made starting up faster,” says Wright. Total startup costs were about $110,000.The cash register finally started ringing last spring when 70 coffee drinkers arrived for the grand opening of her shop, Common Grounds. Wright is proud of her accomplishment and grateful for the opportunity that the equity in her grandfather’s brownstone provided. “Home equity offered me the option of creative financing,” she says, adding that Common Grounds nearly breaks even some months–an achievement for a business less than a year old. She says she would clear about $7,000 a month if she worked at the shop full-time. Instead, she continues to work as an attorney. “I like to keep money coming in, and my employees know they can call me anytime if there is a problem.”
Wright’s Advice:
Show me the money. Borrow when you are in the best financial position. Wright knew her application would look favorable to the bank because she was bringing in an annual salary of $125,000. She also had a credit score of 750 and no major bills except a $121,000 education loan.
Plan ahead. Once Wright decided to embark on her coffee endeavor, she took all the necessary steps to ensure success: research, training, and financing. The latter will allow access to money before an urgent need arises. “That way you don’t have to accept the first thing that comes your way. You can shop around.” says Wright.
Buy as soon as possible. When you leave campus and take on that first job, don’t look for a place to rent. Look for a place to buy. In the long run, Wright says she would have been paying more money in rent.
Partner with your parents. Talk to your parents or retired family members about taking over mortgage payments for a house they don’t want. If you can’t handle the payments on your own because you’re still in school or temporarily unemployed, enlist the help of relatives. They might be able to pool their money and take over the payments for you until you’re gainfully employed.