Hello Forevercashers! It’s that time again – Passive Income 101!
In session #11, I wanted to talk about investing in restaurants as a passive income asset. Please note that I am not talking about starting a restaurant of your own, but rather buying an already established one.
Restaurants are everywhere and each one has an owner. So obviously, restaurant ownership is a business model that can work. But as is the case with any investment, you should know what you are getting into beforehand. And remember that a Forever Cash asset should require little time to maintain. So while you will probably dedicate a few hours per week to looking at the books and meeting with the manager, I don’t want to see you sweating over a hot stove or scrubbing dishes – unless that is your passion, of course.
With that in mind, here are a few things to keep in mind when investing in a restaurant with the hopes of generating passive income. According to some investment websites on the subject:
Plan on 10% more time and 10% more money than you planned to open the doors. Cash at opening should equal 4 – 6 months of expenses to bridge a possible slow start.
Assess restaurants for costs, gross profits, food costs, equipment condition and costs for repairs, redecorating and putting a new style of management in place.
Avoid investments where repair and decorating costs seem prohibitive. Be wary of restaurants that have high food costs and an aging customer base. Plan to operate without significant profits for a year or two if major changes must be made.
Also, be like Warren Buffet: if you don’t have to change anything, don’t. Buffet is notoriously hands-off when it comes to the companies he owns. If the restaurant of profitable, then there probably won’t be any need to change up staff or the menu. In fact, it’s a good idea in general to be careful about giving management jobs to family and friends. The candidate might be a nice person, but what you need is a competent manager who won’t drive the business into the ground.
A restaurant can be a great passive income investment. Just crunch the numbers first and educate yourself on the future prospects.
And most importantly, have some fun!
For more info, check out the following links: