New Restaurant-Should You Buy, Build or Lease?

Just as there are different methods in cooking there are different methods to acquire a location for your new restaurant.

Build, Buy or Lease Your New Restaurant

There are basically three options when you open a new restaurant:
1)    Purchase or lease a property and build a restaurant to your specifications
2)    Buy an existing restaurant and assume their lease agreement
3)    Lease a former restaurant space that has been vacated.

There are pros and cons to each approach.

The method you choose will be determined primarily by your budget to build and the monthly rent you can afford based on your projected sales.

Cost to Build or Remodel a New Restaurant

When it comes to building or remodeling a restaurant, the sky’s the limit.

In most cases, you will have a limited budget to build or remodel an existing space.

Assuming your new restaurant will be of similar size and design as your competitors, we can use the competition to determine the cost of new construction.

For example, if you were planning to open a sandwich shop, you can find out the cost to build based on your competition.

Using our sandwich example, we determine it costs between $116,000 and $262,850 to build a Subway based on information on their website.

Additional Cost

In addition to the actual cost to build a new restaurant, it’s extremely important to factor in other hidden costs or “opportunity costs.”

Depending on where you live the process of obtaining permits to build a new restaurant can add significant fees and time to your project.

• • Does the property have enough parking for your use?
    If not, can you obtain a variance, or will you require valet parking?

• • Does your use require a conditional use permit?

• • Can you obtain a liquor license and how much will it cost?

• How long will it take to receive all permits to open for business?

Build or Buy Existing Restaurant

Your budget will typically be the determining factor to build a restaurant or purchase an existing restaurant.

Prior to making a decision in either direction, you need to compare cost to purchase and remodel an existing restaurant compared with building from scratch.

If the cost is the same, you will need to look at the pros and cons of both scenarios.

Pros of Buying an Existing Restaurant:

• • Possibility to acquire below-market lease or less restrictive liquor license

• • Time to open can be significantly reduced

• Ability to acquire property that would not be permitted today, “grandfather status”

Cons of Buying an Existing Restaurant

• • Layout is not efficient

• • Condition of equipment unknown

• Less ability to negotiate lease terms with landlord

If your budget is $75,000 and the cost to build a space is $150,000, your choices will be reduced.

If you want to open your new restaurant without the funds to build or just don’t have the time to wait 6-12 months to open, buying an existing restaurant may be your only option.

Want to avoid common mistakes and open your restaurant fast at the best price?

Download “Open a Restaurant at a Great Location at a Great Price” to get started on the right foot.

Do you have questions about opening a new restaurant? I’m here to help and happy to answer your questions.

Just click here to submit your questions.

Cheers!

Mark Chase

Restaurant Real Estate Advisors