Restaurant Building NOT SELLING - WHY?

General Real Estate Investing
1

Howdy all:

One day while driving around looking at upcoming foreclosure properties, I made the mistake of telling my Mexican wife that an empty restaurant building we were passing was going to be auctioned at the courthouse steps the following Tuesday. It was Wednesday.

She got super excited, she said it was her dream to own a Mexican Restaurant, and would not let up on me. I was the high bidder!

After buying it, I started really researching the restaurant business, also started rehabbing the building. After considering everything that’s involved - I decided the food service industry is not a business for me.

Come on, I’m an investor - plenty of time, low stress, do pretty much what I want when I want. A restaurant would just be too much work!

My wife said she’d do all the work, etc…I stood my ground - No way!

So - We finished fixing-up the building and put it on the market back in November. I normally sell my real estate on my own, but I used a realtor this time because it’s a commercial building. I gave the realtor a 3 month contract. He siad he’d list it for a buck fifty - 150. Great!

A month passed, no offers. I asked that he lower the price to 139, and it just stood there…no offers. His listing was about to expire, so I went for the keys. The realtor said that he needed another month becasue those winter months make it hard to sell, he might have a buyer in the works, etc, etc.

I gave him another month and lowered the price to $115k. I actually told him to list it at 99k, but he said that the extra 15k would give some wiggle room.

Now his listing is about to expire again, no offers. I am quite perplexed as to why it’s not selling. It’s a 3000 sq.ft. building on three commercial lots. It shows well, except for the old kitchen equipment, and it’s on a busy corner. Already has the expensive grease traps installed. etc.

It’s not the best location, it’s on the old side of town, but the area is actually turning total hispanic and there is a lot of action. It’s really a very good location for a restaurant. The former owner, now in prison for drug dealing ???, was quite successful - the place was always packed.

New buildings are going up, New Sonic drive-in just opened a few doors down, a Big Mexican grocery store just opened nearby.

I actaully bought another commercial property close by to use as a “we buy houses” location, because there is a Super WallyWorld opening a few miles away on the same street. I know traffic will increase.

I buy and sell single family houses all the time, but this commercial restaurant building is new to me. I never have a house on the market more than a month, they always sell fast.

How do you sell a building set-up as a restaurant? Should I rip out the kitchen and sell it as a retail space?

I need some ideas. Any advise from the pros? Please help.

Thanks,
Bighat…
no cattle

2

Let your wife open up the restaurant {she will find out how much work it is}. Then you can sell the bussiness and building or just the bussiness and keep the building as a cash flow.

Bruce

3

Obviously something isn’t quite connecting well with the property. And obvously it must be the location. Because if there are three things someone needs in a piece of land, it’s always location, location, location.

The price seems good though. Even if someone would want the land and not the restaurant, the price doesn’t seem terrible to be able to acquire the property and either demo the building or convert it. Did you try marketing it as retail space and possibly offer to tear the kitchen out?

If it is sitting on at least 1.5 acres, study the market and possibly try to market it to self storage developers. If the zoning fits, storage developers can be fairly flexible with their opportunities. Market it as a multi-story storage opportunity.

Just a thought. Good Luck!

4

Commercial properties are funny that way. Sometimes they sit on the market for a year, sometimes they are snapped up.

Have you tried leasing the restaurant to at least get a tenant in there, if your wife isn’t going to do it? There might be an entrepreneur who can afford a lease and start their biz, but can’t afford the whole building purchase on top of that.

Also - is parking an issue, and ingress/egress? Those can be biggies for the success of a restaurant. If there is no where for the customers and the employees to park, forget it.
And if it is in a busy section where it’s hard to actually get to the parking, that could be a turnoff as well.

5

Actually, it’s on three lots, with plenty of paved parking. Has two big entryways - can drive around the buiding - ideal for a drive-thru.

Actually, a bunch of folks want to lease the building, but since I just installed new carpet, etc - I was hoping that I could sell it and be finished. I could use the money to buy more houses :slight_smile:

The listing expires in a couple of weeks. Perhaps I’ll just owner finance the building. I have had folks approach me on that as well.

We have actually had many people say the want it, but I still don’t see a contract :cry:

We shall see what happens.

6

Did you list this with a realtor who only specializes in commercial real estate (specifically hospitality and entertainment), or someone who is primarily a residential agent who occasionally does some commercial?

I ask this because one of my specialties is going after expireds after a resi agent’s had the listing stagnate on the market. Most people do not make the distinction between what a commercial broker is capable of and the limitations of a resi agent.

One potential red flag is the fact that it’s currently vacant. I know to my buyers a restaurant property is much more appealing when it’s in operation with a tenant. Just some food for thought.

Anthony

7

Update on the building:

After listing expired, ran an ad in the paper for 15k less than was listed with realtor. Received an offer for 5k under. I took it!

I also had the mineral rights to the property and decided to go ahead and give those to the buyer. I’m wondering if I should have offered to sell instead of gift the mineral rights. ???

Anyway, I’m happy - My wife is pissed! She wanted so bad to open a restaurant business, but I would not contribute any more funds from my business.

Wonder if I ded the right thing?

8

Unless you have a burning desire to be in the restaurant business, you made the right choice. Do not get me wrong. It is a very rewarding business. BUT you have to love it. It takes all your time and you must enjoy keeping people happy. I could go on and on. I think that to make it in that business, you should first work in it for a few YEARS. Just like REI. You need education.

Bruce

9

Thanks for the reply,

I bought the building on the courthouse steps for my wife, but after learning of all the BS associated eith the business - naw thanks!

We should realize a pre-tax profit of about 55k. I decided to give those funds to my wife since she pushed me to bid on it. Figured that’ll keep her off me about opening a restuarant.

She was upset becasue the buyers were bragging how much profit is in the food business. I figured if I worked on my investing career 12 hours a day, 7 days a week - hell - I could retire in a few months!

Anyway, thanks for the help.

BigHat…
no cattle

10

Yea there is profit in the food business, but you work your a$$ off for it. Let them bragg, let them work 60-80 hours a week for their “profit”. Me, my wife, and her parents own a convenience store/cafe and well, lets just say that it consumes our lives. We are looking to sell and get into real estate investing. My inlaws already have a few rent houses and are working on a few rehabs, so after selling our store/restaurant my wife and myself are going to invest into RE ourselves. So, IMHO, I believe you did the right thing. And I’m not saying that I’m not going to work my a$$ off in REI, but if I invest smart then I believe that my money will work for me and I will not have to work for my money. Just my 2 cents. :wink: Good luck.

Weldon

11

I am happy that I finally got a contract on the restaurant building. Indeed - I decided that I’m too lazy to work that hard, don’t get me wrong - I love to find, fix and flip or rent properties - yet I never really feel as if I’m working too hard.

However, there is that little bit of me that wants a constant income. I sometimes go a couple of months without a payday, EXcluding rental income - so the thought of making a few grand everyday is what makes me think perhaps I should have went for opening the place. I’ll never know.

The thing I know is that I’d rather sign deeds rather than serve tacos!

Bighat

12

Yea, I understand that. There is not much time for rest in the restaurant biz. Of course, our cafe is in a small town and our biggest problem is finding good employees. When they don’t show up or if we’re under staffed, guess who gets to work in their place. I believe if we stepped back and rethought our management, we could nip a lot of problems in the bud. BUT, my wife and her parents are worn out and ready to retire from the fast food biz. You might have been a great success, you just never know, the restaurant biz is funny like that.

Weldon

13

As far as bad employees, have you ever thought about taking a lesson from In-n-Out? It’s a burger joint chain in California (I think they have spread to Nevada and Arizona now). What’s so special about them? Nothing much, it’s just a simple burger joint. But their starting wage is $9/hour, everyone gets paid vacation, free meals, free training (management training I assume), 401(k) plans, and medical/dental/vision benefits … even the mop boys and hamburger flippers get all this. But the results show - every single person working there is about customer service … smiles, quick service, attentive to messes, cleaning things up, running the grill as fast as possible, etc. They address every customer as ma’am or sir. And if you took 10 minutes to eat half your fries so that the other half was cold, you might even go up there and tell them your fries are cold and they’d snap right to getting you a new order - that’s just a guess, but I wouldn’t be surprised. But the key here is that there are high school kids whose aspirations are to get a job at In-n-Out (no kidding).

It really is a quite impressive business model. So impressive that they are still privately owned by the original family that started the business. Something like over 200 stores today. Every store is built from the same set of blue prints (although I think that might have changed recently). Fresh cut potatoes at each location. Fairly decent burgers. And most locations are jam-packed at least 8 hours a day. I think I tried to run the numbers on one of these places once and I figured each store is netting several hundred $k per year, even with managers, supplies, utilities, etc (but before taxes). I want to start opening them at college campuses in the East because as a recent college grad, I know they would make an absolute killing wherever you put them. But they are privately owned, and they don’t franchise, so I’ll just have to copy their business model as best I can :slight_smile:

14

Yea, I agree. We’ve been looking in to some sort of benefits and bonus’s. As of right now, our employees have nothing to look foward to. We offer no extra incentives. We don’t give a bonus, we used to but things got tight, of course I believe we’ve felt the repercussion of not giving them. And not to mention the turnover we have. I could go on, but I will stop at that. Well, anyways, good luck on your ;D adventure.

Weldon

15

Have you considered converting the property to be used for something other than as a restaurant?

Due to the high failure rate of food service businesses, lenders are reluctant to finance them at this time … so most likely potential buyers are having a tough time arranging financing … or can not meet the lender’s down payment requirement.

This is one reason I avoid food service related financing requests, not many are either approved or even close and turn out to be a waste of my time.