Buying a Restaurant for Sale with Real estate is ideal for restaurant buyers who want the security of a payment versus the uncertainty of rent increases.
There are several advantages to buying a restaurant with real estate which include:
Extended Lending Terms. It is typical for SBA lenders to provide lending terms under an SBA 504 program which allows for a term of 20 years on the property. Another SBA program, the SBA 7(a) allows for the purchase of real estate as well with term of 25 years for real estate.
Lower Down Payment. There is typically a lower requirement for a down payment or required capital from the buyer when you are purchasing a restaurant for sale with real estate. We Sell Restaurants will typically see a requirement from the lender with as little as ten percent down. That means you invest less money up front in the venture and can have more funds to invest in operations, marketing and growth strategies.
Long Term Real Estate Appreciation. While nothing is certain, U.S. history shows that over time, real estate is an appreciable asset. Therefore, when you are buying a restaurant for sale with real estate, you are purchasing a long term investment for your family. You can also deduct expenses on the acquisition including ongoing interest as well as depreciation.
No Rent Increases. Most landlords will request increases in rent each year, ranging from 1.5% on the low side to 3% as a norm and 5% as a high end. When you buy a restaurant with real estate, your payment is established through your mortgage and the monthly occupancy cost is certain for the long term. Thus, as sales increase, your occupancy costs as a rate to sales will continue to go down instead of up. As a restaurant operator, this pushes more cash flow and profitability to your bottom line.
Does that mean that buying a restaurant with real estate is always the right choice? Not necessarily. The area where you want to open your concept may simply not have any options to acquire property. If you believe your concept is best suited in that market, then the best choice is to rent for the short term and see if an acquisition is possible.
If you are testing a new concept and want to be sure it succeeds before moving forward, it’s also best to rent first to develop the concept. You can always move forward on your restaurant with real estate in the future, with an established brand and cash flow under your belt.
If you decide you are in the market for buying a restaurant with real estate, you should consider the area demographics and market trends. It’s also important to participate in the venture as an owner/operator by taking an active role in the operation. That is a requirement of SBA lending.
Overall however, buying an existing restaurant with real estate included can offer benefits like long term financial security, real estate appreciation, tax benefits, and being your own decision-maker.