If you have a piece of commercial real estate that has multiple uses, making the decision on exactly how to use that property is one of the most important choices that you will face. Two top options for commercial real estate are a restaurant or a multifamily dwelling. Assuming the size of the property can accommodate both, the decision can be easily made with certain considerations.
Ultimately, since profitability is the reason an investor buys a piece of real estate, examining the potential ability to make an excellent return is worth the time. For a restaurant, this business can soar to include franchising and chain structures. If the restaurant is successful and has unique recipes, you can opt to franchise the restaurant. This means that another investor can use the same name as the restaurant and open the same business, with the same menu, in another city. For this, the restaurant owner receives a “franchise fee,” and, in most cases, the owner can choose where the franchisee buys food products, for additional revenue.
If the restaurant owner decides to expand their restaurant business by opening new restaurants, this expansion can go as far as the restaurant owner allows it to go. In some cases, it is a purely lucrative cash move, and many are traded on a restaurant ETF. When the restaurant is traded within an ETF or exchange-traded fund, others can invest in that restaurant chain and profit from the growth. This is the ultimate restaurant profitability equation but does take some time.
Multifamily properties will yield as much as the rent that you are charging. For example, if you create a 10-family unit and charge eight hundred dollars per unit, your gross is eight thousand dollars per month. Once you subtract the mortgage, taxes, cost of repairs, and your expenses, you have your working capital. In this example, if there is little working capital, there are not many options. You can increase the rent, but that must be at the end of a lease term. You can also try to reduce your principal and interest payments if you have at least twenty percent equity in the property. This may save you some money on your monthly mortgage but requires a current appraisal.
There are also many ways to increase your monthly profit with your multifamily property. If you add furniture, you can charge more for a leased unit. In addition, if you ramp up the smart-technology in your property, it will allow you to secure more monthly revenue. There is also a chance to increase the actual value of the property in order to refinance the property. This refinance can produce thousands of dollars if the value is there. Remember, these increases will be monthly or annually. It’s very rare that the property will bring in major increases in the short term.
Restaurant Versus Multifamily
If money is the most important reason that you are making this choice, then the restaurant is a must. The money is more immediate if you can successfully market to your target customer. The sky is the limit for how large you can scale. With the multifamily property, you are contained to the number of units and that profitability is slow but manageable. With restaurants, growth comes with success. But you will need to manage shifts and people which can be laborious. You must stock the restaurant and hire the best possible chef that you can afford. Therefore, the amount of work in the restaurant is much more than the work in multifamily real estate.
With multifamily, you’ll only need a maintenance person for minor repairs. Since new technology does allow tenants to pay rent digitally, it’s not critical to have a human do that task. With the restaurant, you’ll need minimum wait staff, bus staff, and cooks. If the restaurant serves lunch and dinner, you’ll usually need staff for each meal. If there is a bar, which is preferable, then you’ll need to employ a bartender who also can double as a take-out order clerk. For the most part, the ability to expand and profit will always lie with the restaurant. Perform your due diligence, check the trends and launch a restaurant with the ambiance and menu to bring in the masses to enjoy your cuisine.