Restaurants for lease may seem like the easy path to restaurant ownership but before you sign on the dotted line, make sure you read this article on the harsh realities of renting a vacant restaurant space.

At first glance, restaurants for lease can seem like an excellent deal.  After all, there’s generally no cost to acquire, the landlord often offers up free rent for a period of time and some even include equipment in addition to basic infrastructure like a grease trap and hood.  What could go wrong?  Consider these harsh realities.   

First of all, restaurants for lease do not have an existing cash flow or sales pattern.  Compare that to buying a restaurant.  When you rent a restaurant, you’re getting access to an empty space and that’s it.  There is no revenue stream.  There’s no bank of customers who have been dining here on a loyal basis and creating sales.  Don’t be caught in the trap that “if you build it, they will come.”  It’s a very expensive undertaking to win over those initial customers.  The expense associated with advertising and marketing can be quite significant. 

For most restaurants the first hurdle of reaching $100,000 in sales is the toughest to reach.  Buying an existing restaurant means you are buying built in sales.  Leasing a restaurant means you are starting from zero.  Don’t mistake restaurants for lease as a great deal because there’s a low cost to acquire without considering all the expenses involved.  The harsh reality is that it will cost much more to achieve your sale than you ever forecast.

The second harsh reality of restaurants for lease is that they will always take longer to build out and cost you more than you ever expect.  Buying used restaurant equipment is a common strategy some entrepreneurs will use to furnish their restaurant.  What they soon discover is that the effort and time involved in outfitting an entire kitchen, chasing down a delivery or trying to rent a truck and haul items on their own is a costly undertaking.  That’s before bringing in a plumber, electrician and carpenter to install the equipment and have it inspected.  It seems that no matter what you believe you’re starting with, a pipe there or a valve here needs to be replaced or moved to pass inspection.   In contrast, you can buy out someone else’s location that’s fully equipped with all the assets in place.  With equipment that’s operating and running, you skip the costs, the plan submission, the inspection and the drama of a new build and in most cases, get a rubber stamp on a rollover of the license.  A restaurant for lease is viewed by most regulatory authorities as new build and must be brought to code while one that’s operating (in many cases) is either grandfathered in or put through much less scrutiny. 

The last harsh reality of restaurants for lease is that financial resources are required.  Just because there is no cost to purchase, that doesn’t mean the landlord isn’t looking for strong financial credentials.  He or she will want your business plan, personal financial statement and proof of funds to operate for a period of time.  If you have $5000 to open your restaurant and feel certain it will take off from day one, you won’t be approved because you’re underfunded.  Wait until you have a much larger nest egg.  Equipping a restaurant for lease is a minimum investment of around $35,000.  Add to that first and last month’s rent, a security deposit, money for inventory, and deposits on your utilities.  The total is a tidy chunk of change and landlords know that.  They don’t want to put a new tenant in their vacant restaurant space only to have you fail when you run out of money in a few short months.  Landlords will want to see at least $50,000 to $100,000 in cash on hand for a startup.  Smart restaurant brokers will get this information from you before showing you empty space. 

Restaurants for lease sound like a cheap option but as these harsh realities demonstrate, they can be expensive for launching a new restaurant.