does anybody have a restaurant or own commercial real estat?

[hamster]

AKA the shits and giggles game.

There is property available downtown, and includes a restaurant/bar (Hs dream) and 21 apartments for a very reasonably dropped price. Downdown is very up and coming. It would be a great opportunity.

I don't have any specific questions, just looking for insight on the experience of owning and operating such a ventor.

[LoveTrains]

H always says he wants to do this. And then I remind him that most bars/restaurants fail in the first year. whomp whomp whomp....

In all honesty, I think it could be a great opportunity and investment. Hopefully someone else has something more constructive!

[hamster]

I really feel like we would do go with a restaurant, especially given the location.

But if the price is correct, the apartments would pay for the loan and the restaurant could be a hobby.

I may have emailed our realtor, lol.

[rubytue]

You'll need a lot more cash flow from the apartments. Having 21 apartments will require an apartment manager, and if it's only enough to " pay the mortgage," you will be bleeding money. For residential, you should figure half the gross rents for expenses.* So about 30% of gross rent to mortgage and 20% to repairs, vacancies, taxes, insurance, etc. Oh, plus property management.

I know nothing about restaurants, except an old friend who opened and closed one in 13 months. But I grew up in commercial real estate. Dad also owned a 18-unit apartment complex, but that has a property manager so I never dealt with it.

* eta: assuming you want profit in there. The rule of thumb I've always read/heard is to keep expenses to 50% of gross rents. It's why so many accidental landlords get frustrated when rent=mortgage.

[hamster]

Thanks rubytue, that's helpful.

[rubytue]

Oh, I hope it didn't come off as a downer. Because I believe property is one of the best ways to build wealth. It's more hands on than stocks, but it's also something to hold. If the numbers work, it can be great either as a long-term investment or as income replacement. My folks started early, and it was tight when I was younger, but my father is sitting pretty in retirement with his paid off properties giving him a steady income flow.

And I may or may not have spent most if today dreaming about buying a small hotel.

[rubytue]

And one last thing (I need to go to bed), a commercial listing should give you a lot of the numbers you need. The apartment building listings I look at generally tell you the rent, apartment sizes, gross rent, annual expenses, and cash flow. Cash flow is what you want to look for. That's your profit. What you live on while you built the resteraunt.

Good luck!

[Deleted]

I manage the paper end of things for a restaurant owned by my boss. I helped him start it up with my previous restaurant experience. It's in a good location and makes decent money. He broke even after the second year.

But he also has a load of personal wealth at his disposal and had the ability to dump an unlimited amount of money into the startup.

I don't think I would ever personally own a restaurant. It's a true labor of love, I guess, that I just don't have. A lot of restaurants close, not just due to financial issues, but owner burnout. It seems like there's always a disaster around the corner.

[hamster]

Oct 25, 2014 23:06:40 GMT -5 rubytue said:

And one last thing (I need to go to bed), a commercial listing should give you a lot of the numbers you need. The apartment building listings I look at generally tell you the rent, apartment sizes, gross rent, annual expenses, and cash flow. Cash flow is what you want to look for. That's your profit. PWhat you live on while you built the resteraunt.

Good luck!

Ooh, I'll have to look more. I saw property taxes were super cheap, and occupancy was at 95%.

Fwiw, the property dropped down to $700k.

[niq]

I think there is some rule of thumb for restaurants like "you should be able to pay the rent with the first week's gross receipts". In generally I'm not super big on putting money into this sorry if thing but if he would enjoy it that's a different matter.

[smsm24]

I saw this on the app and decided to chime in. Restaurants are hard hard hard work and not at all glamorous. I grew up in the restaurant business. My parents worked 80 hrs a week during the summer ( it was a seasonal area). They cooked, tended bar, washed dishes, ordered, did all the accounting, paid the bills, HR, maintenance, etc. To make money you have to be ready to put in a lot of long hours. I believe that unless you are a hands on owner who knows what they are doing or you have a lot of start up money it's hard to succeed. Every once in a while DH wants to open a brew pub and I tell him he is on his own. Like others I am not trying to be a downer I want you to know what u are getting into. I often see restaurant ownership romanticized and it couldn't be further from the truth.

[kadams767]

Oct 25, 2014 23:16:13 GMT -5 hamster said:

Oct 25, 2014 23:06:40 GMT -5 rubytue said:

And one last thing (I need to go to bed), a commercial listing should give you a lot of the numbers you need. The apartment building listings I look at generally tell you the rent, apartment sizes, gross rent, annual expenses, and cash flow. Cash flow is what you want to look for. That's your profit. PWhat you live on while you built the resteraunt.

Good luck!

Ooh, I'll have to look more. I saw property taxes were super cheap, and occupancy was at 95%.

Fwiw, the property dropped down to $700k.

Nothing to add on the restaurant side of things, but as the owner of a few apartments in what was, initially, an "up and coming" part of the city, I'd be a bit wary of just going by occupancy rates. A lot of apartments in these areas may be occupied, but paying below market rent (or in some cases, actually be quite delinquent in rent). This gives the illusion of a profitable property. You definitely will want to see the leases and rent history. See if the building has been able to support reasonable increases over time. In my experience, we started with tenants that were barely paying rent and had to have them evicted before we took possession, and then we raised rents to right around or slightly below market. At that point, we were basically just breaking even after mortgage and other expenses. It took us 4 years to make a consistent profit every month, and after year 7 we finally got to the point that a PP mentioned - expenses are 50% of the rents we take in, give or take.

[tealblue]

Is the restaurant currently open? We recently made an offer on a restaurant with a good cash flow. The owner had overpriced it so we made a few lower offers and finally negotiated the price. At the end, we pulled the offer for a few reasons but mostly for the time we would personally need to put into it for just a few thousand dollar profit every year. We had a GM lined up but obviously, as owners, we needed to be there too in addition to our full time jobs.

How would you fund this? we looked into a SBA loan and the paperwork is pretty extensive. I would first start by finding a good bank with an SBA expert. We had talked to many many people that were SBA "experts" but they didn't know shit. Neither did the broker on our end nor on the sellers end. We did a lot of explaining to both brokers and the owner about how this all works. The owner had purchased it with a loan from a family member but we don't have any rich people that could loan us that.

with the SBA- they wanted personal financial statements, resumes from anyone who will be on the loan, business plans, monthly forecasts for 12-15 months, 5 year forecasts, and the list goes on. The loan for this was a little complicated too. The banks would put a lien on our houses, as we were personally guaranteeing the loan. We were going to buy a building and the business. I think a certain % of the building was at a fixed rate and term and the rest was variable. We would have to get appraisals for the building ( they don't value furnishing and fixtures), inspections, environmental inspections, etc. we would need to transfer the liquor license as well.

We spent about $4,000 to set up companies and have our lawyer draft a few versions of the purchase agreement. The sellers agent wanted us to use a 1 page form as the agreement but there is no way it had enough details. Like I said, we pulled out for a numbers of reasons but it was a good learning experience. We all had restaurant background and would be awesome at it. But it was going to be years of working there multiple times a week and we didn't have the desire to do that for a few thousand dollars a year.

I don't have any knowledge about owning apartments but it seems like you'll need to arm yourself with good help- property management, lawyers, accountants, possibly restaurant support staff (knowledge of health, food/liquor rules).

[v]

M may have insight on the restaurant aspect

[hamster]

H has been awake since 4 thinking about this, lol

[hamster]

tealblue, very helpful, thank you.

The restaurant is now closed. It used to be a bar, and the city shut down their liquor license as part of the downtown revitalization.

I imagine the apartments are somewhat crappy. I'm not sure the area could support nicely renovated units at this time, but in 5 years it could.

[AAM2012]

Oct 26, 2014 10:42:08 GMT -5 hamster said:

tealblue, very helpful, thank you.

The restaurant is now closed. It used to be a bar, and the city shut down their liquor license as part of the downtown revitalization.

I imagine the apartments are somewhat crappy. I'm not sure the area could support nicely renovated units at this time, but in 5 years it could.

What are you basing your 5 years from now off of? Sounds like there is a lot of risk involved. Personally there is NO way I would open up a restaurant because of the time and money required and the high chance of it failing.

[moolarkey]

Do either of you have experience running a restaurant, not just working in one. Are you prepared for the hours and no family life? Restaurants own you. Most don't succeed.

[cosmowife]

I would buy it but rent out the restaurant to a restaurant tenant instead of doing it myself. I would not run the restaurant.

[imojoebunny]

Oct 26, 2014 12:34:39 GMT -5 cosmowife said:

I would buy it but rent out the restaurant to a restaurant tenant instead of doing it myself. I would not run the restaurant.

This is more my speed.  My friends did this.  They bought a crap restaurant in a good location.  They found a tenant who is a successful, long term restaurant operator.  He built out the restaurant at his expense, while paying rent.  They paid for somethings, but not nearly as much as the restaurant owner.  My friends risk is minimal.  If they default, she has a much nicer restaurant she can rent to the next guy.  

For the apartments, it just depends on what the actual numbers look like.  I can't do crappy tenents.  Too many complaints and problems.  I would rather have 3-4 units that are more expensive, than 20 units for $700k. If your only getting $400-$500 a month, you still have a kitchen, bath, roof, ect for each unit you have to maintain.  I agree for cheaper units, you need 50% to cover expenses for that reason.  For more expensive units, that is not really true. 

Keep in mind the taxes will rise when the property is sold, and the new value is set.  

[tealblue]

Oct 26, 2014 10:42:08 GMT -5 hamster said:

tealblue, very helpful, thank you.

The restaurant is now closed. It used to be a bar, and the city shut down their liquor license as part of the downtown revitalization.

I imagine the apartments are somewhat crappy. I'm not sure the area could support nicely renovated units at this time, but in 5 years it could.

I would also look into what it costs and the steps to get a liquor license. I know there are sometimes a fixed number of licenses per city/area and other restrictions- and sometimes these are a hefty fee to get a license.

Does the restaurant have equipment? Tables and chairs? If not, you are going to have to sink so much initial money into this that you likely couldn't turn a decent profit for years and years. Our SBA expert told us that it's easier to buy an established business over starting one out. Especially restaurants as I think they have one of the highest failure rates. Also - watch some shows like Bar Rescue and Restaurant Impossible and see the issuers failing businesses have.

Add to that- you are managing and owning a number of apartments all with their own issues. I can't imagine how stressful this would be. One emergency (failed roof, AC) could be tens of thousands of dollars.

[M]

Owning a restaurant is far from glamorous. My parents have been doing it for 23 years now. Having grown up in it, I will never recommend it. My dad goes in at 9am to start prepping and my mom gets there around 10 after running errands or doing household chores. They stay until 10:30pm... 7 days a week. That's 90 hours a week and no days off. They haven't gone on vacation in 9? years.

They are ALWAYS short staffed. It's not because of low pay or anything, their newest cashier makes about $12/hour, it's just the way of the business. Normal restaurants have a 200% turn over rate. Their job is never just "restaurant owner", they are whoever didn't show up for the day....sometimes doing multiple jobs.

My parents have developed a really good report with their customers. That combined with really really good food, about 80% of their business comes from repeat customers. But the <1%ers who complain and pitches a fit...can really ruin the day and keep you up at night. Most of the time the complaints are ridiculous and are a poor attempt to get free food. But sometimes the complaints are helpful and customers actually give you specifics on what is wrong so you can fix it.

I've seen many restaurants come and go. I think the biggest reason is the food. If it's not good, people won't go back. Location can be a problem too. There's one restaurant that I heard was pretty good but they only lasted a year I think because of location. There's another one that just opened up and I'm pretty sure they'll be out in a year because there's just too many bad reviews about bad food and terrible customer service. My parents' 2nd restaurant was sold a couple years ago. It was one of their bigger ones and the most profitable one. My dad spent a month trying to teach the new owner all he could to make sure it remains successful. I think it failed a year after my dad left.

My parents use to push us hard to do well in school and to go to college so that we didn't end up working like them. Then giving me a job was the bigger eye opener. Restaurant life is a lot of hard work and at times can feel demeaning even if you are the owner. There's a lot more to it than what I've mentioned here so if you have specific questions, then I'll try to answer them or ask my parents, but PLEASE think long and hard about all the pros and cons before you do anything.

[hamster]

Apparently the apartments are more boarding house style; there are only 4 bathrooms.

It's also in need of a lot of repair, although that's not surprising.

Hell of an opportunity for somebody with enough cash flow, which is not us, lol.

[cajunmom]

It sounds more exciting than the most recent business that DH wanted to buy.

Which was a chicken farm in Mississippi.

[hamster]

Oct 28, 2014 14:46:29 GMT -5 @rennido said:

Besides, you're moving to Montana, remember? lol.

Its a bitter subject.