I have been looking for my first rental property deal in Eastern Iowa (Cedar Rapids, Iowa City, etc) for the past several months and so far have come up dry. The single family home market is absolutely crazy here, most homes I look at sell within hours of listing, even at ~7% interest rates. I've also been looking at multifamily and commercial property deals.
This morning I came upon a brand new listing for a two story building in downtown Mt. Vernon, IA (119 1ST ST NW Mt Vernon, IA 52314), which includes the restaurant and two small apartments on the second floor. See link below for the listing.
I hear from my friends that live in that town that the restaurant is packed Thursday-Saturday. I don't yet have any financial statements from the sellers, but hoping to get that information later today so I can determine if this deal makes sense. I also hope to look at the property today.
This is an interesting deal as it seems to present a lot of options, including multiple exit strategies. However I've never operated a restaurant before.
What should I be thinking about in terms of this deal? What don't I know that I should? Any red flags?
I think the main question is if you really want to own a restaurant or just own and rent out real estate. If you just want to be just a landlord, I would pass on the deal. If you were a restaurateur, it might make sense to purchase, and then sell the business while keeping the real estate (I have had friends who did just this and receive monthly rent from restaurant owners). The caveat however is that they were also experienced, restaurateurs.
When I look back at investments where I lost money, they were mainly investments that I did not understand.
I think the main question is if you really want to own a restaurant or just own and rent out real estate. If you just want to be just a landlord, I would pass on the deal. If you were a restaurateur, it might make sense to purchase, and then sell the business while keeping the real estate (I have had friends who did just this and receive monthly rent from restaurant owners). The caveat however is that they were also experienced, restaurateurs.
When I look back at investments where I lost money, they were mainly investments that I did not understand.
Charles, thank you for the advice. My ideal scenario is to see if I can sell off the business and keep the building as a double closing. Appreciate your input!
Real Estate Broker · Iowa City, IA · Member since 2021 · 46 posts · 18 votes
3y
Hi Matthew,
I guess it depends on whether or not you're wanting to be in the restaurant industry and willing to learn. My suggestion is to partner with someone who has operated a restaurant or just own the real estate and rent to a restaurant owner! Best of luck!