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 restaurant:
1) Purchase or lease a property and build a restaurant to your specifications
2) Buy an existing operation 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
When it comes to building or remodeling the sky’s the limit.
In most cases, you will have a limited budget to build or remodel an existing space.
Assuming your space 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-out space, 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 space 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 the property have enough parking for your use?
- 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 an 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 the 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.
- 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:
- The layout is not efficient
- Condition of equipment unknown
- Less ability to negotiate lease terms with the landlord
If your budget is $75,000 and the cost to build space is $150,000, your choices will be reduced.
If you want to open your 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.
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
Rowena Tutor says
What are the parameters in comparing lease versus purchase decision of restaurant location?
Mark Chase says
Due to the cost of the real estate most restaurateurs lease a space or purchase an existing restaurant and assume the existing lease. If you have the budget and can find a property in a good location it may make sense to buy.
Bob Drake says
An existing wood stove pizza and sandwiches restaurant in a Colorado resort town is for sale by owner. The owner of the business does not own the building but wants to sell the business for $50,000. The lease is $1,500 / month.
Told they are selling because of divorce and have run the business since 1999 we think. We have not talked to the owner.
Jennifer Gambale says
In taking over a current restaurants lease directly through the landlord who owns the restaurant name, how do I acquire
legal rights to that name when forming my llc.? The land lord has expressed the desire to keep this venture under the same name. I am not sure how to do this as far as forms and filing are concerned. My llc. will be of a different name.
Mark Chase says
Hi Jennifer. How long has the restaurant been closed? Do they have a generic name? Are you planning to use their branding/logo, etc? If you plan to use the former restaurants logo and branding, I would try to reach former owner and get permission or purchase the rights.If the landlord owns the name, you can purchase from landlord. If you just want to use the name and plan to change the branding, you may be able to file for a DBA “doing business as” with your LLC owning the name. You may want to do a trademark search to make sure you don’t violate any trademarks. I’m not an attorney, so I encourage you to speak with attorney. I believe you can do a trademark search on legalzoom. Email me if you need more clarification or if I misunderstood your question.
Jennifer Gambale says
Thanks Mark
The land lord does own the name, the restaurant is currently open under his care with employees running it. He owns a small airport on which he built this small restaurant 2 yrs ago with the plan of leasing it to run as the runway restaurant. My partner and I will be running it as Lindsay and Jennifer at the Runway Restaurant, but will llc. under our combined last names. I guess we can get permission/ rights to Runway restaurant and just add our names for signage/ advertising as we are currently local chefs at a different establishment. Is this a legal and sensible way to draw our following and create name recognition?
Andrew Rodenberg says
Hi Mark,
If you choose to lease a space for a restaurant and would need to add finishes, i.e. floors, bar, furniture, appliances for kitchen, is it better to lease the kitchen appliances? I guess I’m a little confused at what would happen to those appliances if I purchase them and at some point the lease is up and not renewed or kitchen closes. Does the real estate owner get to just keep them or would I take them out? Thanks
Mark Chase says
Typically if you finance the equipment or lease the equipment the lender will have a lien and right to remove the equipment. Most leases state anything permanently attached such as a hood system or underground grease interceptor becomes landlords property. Most of the equipment not attached can usually be removed unless landlord gets a lien in the event you owe money. Lease vs buy on equipment depends on many factors and you should discuss with your cpa. Best of luck!
Deb Pearl says
That is really nice that if you buy an existing restaurant that the time to open can be reduced. It would be nice to be able to open faster. My friend really wants to open a restaurant some day, and all this information is great! I will have to share this all with him.
Ridley Fitzgerald says
You’ve got some great tips for buying a restaurant. I like how you said that when you a buy an existing place, the time to open is a lot shorter than building a new one. It seems like that would be a great way to start making money as the owner.
Sariah Meagle says
I might just buy a commercial real estate property if we can acquire a less restrictive liquor license for our restaurant. If our time to open will be less, we might get more customers sooner. Since it allows us to acquire unique property as well, I might consider it.
Alice Carroll says
Thanks for the tip that acquiring an existing operation can be one good way to start my own restaurant business someday. I’d like to know more about restaurant equipment because I’ve been thinking opening my own next year. Things will have to go fast if I would like to get things running as early as possible.