Should You Buy or Lease Your Restaurant Location?

For the new restaurateur, the investment necessary to buy a property may be the deciding factor in the eternal question of whether to buy or lease a restaurant location. Funding can be hard to obtain without restaurant experience, and even someone with a track record in the business may determine that buying a restaurant is too steep an investment unless the location has been proven highly successful for previous owners.

Buying vs. leasing a restaurant location

Leasing your restaurant location

Many new restaurant owners start by leasing and work their way up to purchasing their location, or one nearby, once they have established a steady clientele. Leasing can be advantageous because it allows you to put your capital toward upgrading the kitchen, designing the dining area, and, most significantly, promoting your new restaurant.

The key factor when considering a lease for a restaurant will be what the leaser does and does not permit. Clearly, the space needs to have the wiring, ventilation, and plumbing to house a restaurant, and with that in mind, you may or may not need to do some remodeling to bring the facility up to your standards as well as up to code.

A knowledgeable landlord will be aware that his or her potential profits from a successful restaurant hinges upon whether or not you can adequately utilize the facility to suit your needs. In some cases, the prestige of bringing a restaurant into a prime location can land you a very favorable leasing arrangement—one that is flexible enough to allow you some comfort in case of a business failure and that doesn't put too much burden on you for managing and improving the site.

Another advantage to leasing is that it provides you with an opportunity to spend money on marketing efforts and building up a customer base. Conversely, it may offer an easier exit in the event that you have to give up the business.

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Buying your restaurant location

Buying a location is a major—and typically a long term—commitment. Typically this is reserved for someone who has either been in the restaurant business before, has significant available capital, or is well-known in some capacity and can draw business on the cache of his or her name.

The primary factor, along with having a first rate restaurant, is the ability of that location to attract customers. An attractive property in a well-traveled vacation destination or in a growing community, without a glut of competitors, can be a solid investment.

However, you will need to be diligent when doing your research. Considering the purchase as a long-term commitment, you will need to know that the community has a history of economic stability, and is unlikely to change in the coming years. You also need to know what the local planning commission has in mind regarding construction and changes in zoning and accessibility.

Of course, one major advantage to owning a location is that you will not have to worry about a rent hike. In addition, as an owner you do not have to work within the parameters as set up by a landlord, giving you more freedom to do as you like with your property, as long as you stay within zoning laws and health code requirements.

The final consideration when buying any real estate is the projected value of the property. Will the price of the property appreciate in the coming years? While the goal of most restaurateurs is to build a successful dining establishment, the acquisition of prime real estate can make ownership very rewarding.

In recent years the real estate market has been very good in most areas of the country. This provides the restaurant owner with equity. However, the market is subject to change and it is important, before you consider buying a restaurant, that you have the property appraised and stay abreast of your real estate market.

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