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To Build, Buy, Or Rent? That Is The Question In The Restaurant Investment Game

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When it comes to making an investment in a commercial property, you are placing a big gamble each time on whether you will make a profit. Running a business, any business, comes with challenges and financial concerns. But investing in your own restaurant business sounds like it’s a sure-fire thing, doesn’t it? Let’s look at what you need when going for a restaurant business.

To Build, Buy, Or Rent?

The options you have in investing in a commercial property for the purposes of running a restaurant boils down to three options. Build a property to suit your own specifications in an existing space, purchase an already existing restaurant and assume their lease, or lease one that has already been vacated. It is all down to your projected sales and how much you can afford to spend, and there are pros and cons to each method.

To Build…

In terms of building your own, there is no end to your choices. But you will likely have a limited budget to rebuild or remodel your space. The best method would be to use the competition to calculate how much you would need to build. So, if you were planning on opening a rustic Italian restaurant, using the standard examples of your average Italian restaurant is a good benchmark to figure out. So, using a big example, Subway, if you were to open a sandwich shop similar in size to their standard store, on their website it states that it would cost roughly between $116,000 and $262,850 to build, factoring in essentials such as cafe and restaurant lighting, and bathroom and customer space. And, in addition to this, you need to make sure that you factor in the hidden costs. These will include:

Your location – you may need to get permits to build in a certain area, which can add not just money, but considerable time to completing your project.

Facilities nearby – is there parking? If not, you may need to get a variance, or you may need to integrate a valet parking system.

Licenses and permits – such as a conditional use permit, or a liquor license to sell alcohol, and how long is the turnaround for getting these permits to make sure that you start to trade on time?

To Buy…

The budget, again, is the determining factor in buying a restaurant. Before you make a decision on whether to buy or to build, the best plan of action is to compare the costs of starting a restaurant from the ground up or to remodel one that already exists. If the cost is the same for either, then we need to look into the pros and cons of each.

Pros –

  • Being able to acquire a less-restrictive liquor licence or a lease that is below-market.
  • The time it would take to open would be reduced.
  • You would be able to get a property that possibly would not be permitted today.

Cons –

  • Insufficient layout.
  • The condition of the equipment is unknown.
  • Less of an opportunity to negotiate lease terms with the property landlord.

 

Deciding which method is best is a task, but you need to weigh up both options before pressing ahead.

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