What It's Like to Own a Passive Restaurant | And How I Did It

What I Deal With okay so I'm on my way to my hamburger shop which I own pretty passively if you guys haven't if you guys didn't know um me and me and a partner of mine uh about four or five years ago we did a hamburger shop and we got like three locations and we did pretty well with it and last year we decided to sell two out of the three and the third one we're keeping um because it's it runs pretty passively without us having to be there um but sometimes I go in I would say about twice a month two to three times a month sometimes I go in if let's say we're trying to fix something and I'm there to meet a contractor or sometimes I just go in to say hi to the employees talk to the manager see what's going on um yeah but for the most part uh I don't really need to be there unless something big happens like someone quits or someone needs two weeks off and we're a little bit short but so far um in the last 12 months I think I really had to work like twice maybe cuz someone had to leave for like two weeks where they had a death in the family or stuff like that so um yeah and and also I'm a little bit sweaty because I just came back from the gym um so the restaurant is about 15 minutes away from my house so it's pretty convenient we also do breakfasts like breakfast burritos omelets French toast also do some teriyaki Mexican food burritos tacos uh it's kind of like a hole in the wall uh like a shack and um a lot of people were dming me and asking me what it's like to own a passive rest or how to own a passive business things like that and I always tell them um there's no such thing as passive business because every business has risks um at any moment you know something could happen at any moment the manager could quit and that will require me to be there full-time or you know something could always happen or the restaurant could just run really bad and start losing money uh which in that case I need to go there and try to bring back the sales um try to lower cost and all that requires a lot of time from the owner um so you know you can't really own anything passively unless maybe you have like gas station or coin laundry but even those you know you have to be on top of the maintenance you have to be on top of the prices you know you have to follow your pnls very closely um so everything keeps you up at night even though you don't need to be there and that's something I wanted to point out um especially for a restaurant uh it's always something you know the health department the walkin coolers breaking you know um but I think what made this business very passive for us is the employees um having these very consistent longtime employees and having a good manager is really what is really what changes the game um because we had three restaurants the other two were not passive especially restaurant one was super annoying I mean just non-stop blowing up blowing up people calling out equipment braking uh and the second one was better but also very annoying cuz we're dealing with a lot of employees you know we have like 15 employees at the restaurant or 20 employees part- timers full-timers but the thing about this one that we still have is we only got like seven employees total so it makes things very easy and all of those employees are long time and they're very consistent they're mature um they're very good people and also the manager there um he's a friend of mine the manager is a very good person you know uh he takes care of things he doesn't bother us any small things that happen he takes care of it um so yeah I think it really comes down to that you know if you want a great passive business you need to know the business very well inside and out and you need to have very good employees that are lifers meaning they stay there for 10 plus years and you need to have a good manager or supervisor that will take care of things um because a lot of the times the things that can go wrong is employee drama and it happens all the time um two employees don't like each other you know and it gets very very uh intense you know even though over something that's like not serious at all um that happens so many times and you always need to you know police them and and um yeah that's one of the challenges then you have the equipment breaking and you have overall just sales that you need to keep up because sometimes you know one of the food might be tasting bad but you don't know about it you know one time we were serving carne asada and you know the supplier was giving us some meat that was very tough like Grizzle a lot of Grizzle there and I didn't know about it you know because employees aren't really tasting it until I was looking at Yelp and there was a lot of reviews mentioning the carneia S and pictures and all that so you know I looked into it and I was like oh okay I didn't know and we serve a lot of carneia s with the burritos tacos you know so um yeah things like that you know when the owner is not there it affects sales and once you lose customers it's really hard to gain them back and for for a shack like a hand hamburger Shack like the one I own um there's very little new customers that that just come you know what you need to do is just retain the existing customers we call it Legacy customers you know so if you own like another business like coin laundry you know you have these Legacy customers that's just been always going there or you have a cleaning business or you know whatever it could be boba shop maybe um but yeah I did also want to mention you know um it depends on the type of business if you want it to be passive if you own like a coffee shop or a Bobba shop it's very hard to run it passively because you know you always need to stay on top of the new drinks that come out you know you can't keep serving the same drinks you got to you know print new menus do new items do R&D on new drinks you know new flavors tiger sugar Boba you know whatever comes out you know cheese foam you know like you need to stay ahead otherwise people are just going to go to the new spots um same goes for a cafe you know you got to you got to be on top of the menus and the prices and um so there's type of businesses that even if you have good employees um it's just hard to be passive because you need to constantly renovate so the reason why a business like I own is passive is because the menu pretty much never changes it's your same Burgers burritos breakfast burritos I mean the menu hasn't changed for years you know sometimes I add stuff stuff here and there just for fun um you know but I really I don't need to you know it's bean and cheese burrito carne SAA burrito so the menu doesn't change uh which is very easy I all I need to do is update the prices maybe once a year you know raise it a little bit to to meet inflation um yeah so a lot of the things could be done by the manager and he takes care of all the things um the times that I would need to step in is let's say like there's a major equipment issue you know I need to we need to replace the walk-in cooler it cost like $4,000 you know I will need to reach out and kind of get pricing on those things those items but you know small fixes I will tell the manager hey go call this person have them come check it out and then the manager will say hey it was you know $400 to fix all right cool write them a check another times I need to come in is there's employee drama you know employees like oh I hate working with this person I want to quit and the manager would be like hey let me talk to the owner and and then I'll come in and be like hey what's going on you know we can't you know can you guys please you know what's the issue and sometimes it's just having a small talk will fix the What I Do At The Store issue hello hi good morning guys hey how you guys good okay so today is Sunday my manager is actually off on Sundays um so you know sometimes I come in on a Sunday just kind of check it out created my own payroll system using Google Sheets um so yeah I could track the sales through Clover on my phone yeah and also um you know this restaurant is a super old building it's like a hole it's like um it's a shack you know it's like a Burger Shack um and you know it was that's kind of our strategy is like we just didn't want something that you know had a lot of room we just wanted something with a large margin of error meaning you know some that was just running super bad so if we come in um it can't get any worse kind of uh so that was actually good strategy U because we got it for cheap and it was making money so if we just improve stuff I mean it just makes things better um and even though our Burger Shop is still a sha um we made slight improvements on it because a lot of times people get too um too po um too optimistic and they sign into these really heavy leases long-term expensive leases um you know they just think the sales are going to double and and you come in and you find out like it's really hard to raise sales for businesses it's actually really really hard and a lot of times you look at Instagram and YouTube and think like oh I just got this business and increased the sales by three times no it's you just can't um unless you get Super Lucky um or unless it's like a business where you could directly make phone calls and you know like cleaning business you could co- call a thousand people and get a few customers and increase sales like that so unless it's something like that it's really hard you know the person before you you know was running this business for many years and they know in and out and they weren't able to do it you know so it's not likely that someone you know you're going to come in with no experience and and raise the sales all of a sudden you know so it's it's a very hard thing to do and I think um if you're into the buy and build uh mindset meaning you buy an existing business to to improve it you have to you have to assume that sales are not going to go up you have to assume that sales might actually go down because of the ownership and change in ownership and kind of do your projection from there what am I doing here D want some fried chicken fried chicken would be so nice today there I'm to going uh lunch for my for me and my wife after this and I'm going to stop by the Japanese market and get u m um mitsa market and get Raman for her but for me I've been craving Ono Hawaiian for some reason so I might have to just do that for myself um Ono Hawaiian is is is good is this real that's real there's whole whole other ways uh employee could be stealing and that's another topic um you know there's a lot of ways employees could be stealing and um you know there's also inventory theft you know they they take a block of cheese home you know they go to the walk-in cooler and they you know stuff a lot of steaks in their pocket or something I mean that happens all the time um so much so that restaurants usually have a camera in their walk-in cooler and also um another thing that's very interesting is a lot of weird things happen in the walking cooler and what I mean by that is you know you know if you work in the restaurant industry you know what I'm talking about so but you know I don't I don't say anything if if it causes no drama then you know and I don't see it I don't say anything all right what else is going on over here so I'm just doing the cash balance you know the registers we have a starting Reg register and register we log all those things to make sure everything balances and these are things that the manager will will just take care of every time he's here every morning um but because I'm here I'm just going to do it I'm going to do it for him okay that wasn't the right one it's actually this one okay so one more thing this is what we use to do our orders the manager we do all this um we order it says order on Sunday and Thursdays we order meets from this person and then we have a produce guy that we order every Tuesdays and Fridays we have another vendor and we also have another vendor for the dry goods so let's say the manager is out or he's on vacation or he calls sick and there needs to be order that needs to be done I would need to come and I would need to come and do the orders which doesn't take that long um also it's Labor Day on Monday and we're going to remain open and um I don't mind closing it on Labor Day but I think the employees wanted to work and they wanted the money um so we're going to leave it open but I'm also going to give them an extra like 50 bucks to the people that are working on Monday or $100 each you know something like something like that to just show them like hey you know thanks for working on Labor Day um so even stuff like that I'll tell the manager hey um can you give everyone an extra $50 or $100 on Monday tomorrow um and tell them thanks for working on Labor's day um you know he takes care of all that hi hi let's see T some my Cheeto man hot Cheetos so good let me take some crap home let me take some how you doing Martin yes sir how are you good all right Dan a little tour awesome oh look at this nice chili beans hello hello thank you all right the walk-in cooler I got this thing replaced here $4,000 broke like 2 weeks ago the thing it's like everything goes good and something like that happens it's like yeah sucks what am I here for need some [Music] eggs taking some uh Hot Cheetos home um cuz I'm going to use it and I want to eat it I mean it's so good so I'm just taking a little bit home just to enjoy um what else thank you guys I'll see you see you Daniel take care okay yeah have a weekend you too all right bye bye guys too also I get this question a lot is How I Bought My First Restaurant how how did you buy your first business um we bought our first business by searching online and uh bis byell bisben ben.com there's two websites there's bisb cell.com and bisben ben.com those are the two biggest websites public domains um where you buy and sell businesses and it's kind of like uh a lot of the stuff there are being yes so it's very it's like it's navigating in like very dangerous Waters cuz they say all these things you know they say the most positive things um the sky is the limit or blah blah blah or you know sales is growing and super easy to run they the broker says all these things um and you have to watch out for that because it's it's never easy um it's never super easy to run I mean you know it's just very tough you know their business is not making what it says almost all the time um I don't think I've ever saw a business where it says it's making you know 100,000 a year and it's actually making 100,000 a year or more even when you call the broker they're like oh it's making more than that no I've never ever and I've seen over a thousand I've never seen a business where it says is making a certain amount of profit and it actually is it's always lower right so you have always have to look at it like okay if they say they're making 100,000 they're probably making nothing or at best 60,000 a year you know and you have to kind of have that in mind when you look at these businesses um so we got our Business Brokers first business by looking at Biz by sell you know called a random broker I got kind of Lucky cuz the broker was actually good person um and it's very very rare I'll say one out of 20 Brokers are actually decent people or one out of 10 U business brokers it's very different if you're dealing with real estate um because business there's just much less regulation and it's just more hearsay right where real estate is like hey if you say there's a swimming pool and it's permitted and actually it wasn't permitted for a swimming pool then the broker gets sued right there's a lot and you could you know get in trouble your license revoked um but in business it's you know you don't really claim anything you just say hey the business is doing this amount but the buyer has to do their own due diligence right the broker doesn't take any responsibility so they could kind of say whatever they want and they won't get in trouble so business brokers are just different animals um they are like car salesmen you know but even worse um because they don't take any responsibility after the transaction is over they just take their money and they go home and The Business broker fee is a lot higher than a real estate real estate is about 5 6% which is shared by two Brokers a business commission sale commission is about 10% and it's NE it's not shared because the business broker usually 95% of the time will not work with a buying broker they'll just say no cooperation or they wouldn't mention it but if you say hey I have a buying broker um you know can you contact you can he contact you the selling business broker will just ghost you and and tell the seller nothing you know so it's just very dirty out there um but anyways what was I saying oh yeah so we got our first business uh looking at online business by sell uh we looked at a multiple you know we're going to make offers and you know sooner or later it took us about eight months to really get the first one uh we had to go through you know a thousand different businesses and we finally found one that you know we met the seller and we felt like this was the right one and it was actually profitable and doing well um and we got it uh we The Purchase Price bought the first business for $430,000 um and we overpaid like crazy but we didn't know better cuz it was our first time you know really we should have got it for like 300,000 350 but there was a lot of things wrong with the business which we didn't know because we weren't you know we didn't know the business that um later we found out we're like oh man like I can't believe we didn't even see this you know the business didn't have workers comp you know they didn't have insurance they were they didn't pay overtime to their employees um they were paying a lot under the table the equipment was all broken and old I mean the plumbing was messed up the roof was messed up so so many things that you know we should have got we should have caught but we didn't and we we were suckers but we didn't know any better you know we're two guys Finance so we got our first business for 430,000 the down payment on that was about 120,000 total it was about 880,000 for the SBA loan down payment and then it was about 20,000 for closing costs SBA closing cost another 20,000 for like you know first month's rent security deposit uh inventory utility deposits so overall the total considered down payment was $120,000 so it was $60,000 000 from me 60,000 from my partner and you know we were two Finance people we had we had a little bit of savings saved up so we kind of went all in you know I quit my job I went in there just worked like 60 70 hours a week to learn everything and it was pretty crazy um and it worked out and Co happened shortly after which was another crazy story and yeah it was we were just working like crazy to make ends meet because Co happened and sales just went plummeted but if you guys know covid actually made things very busy shortly after all the free money came in and you know place was getting super busy um oh where am I going D I'm lost the freak dude yeah so Co made things very busy um damn ha being lost yeah so Co made things really busy um which was good and bad because we we had such a hard time finding employees and you know we had to shut the restaurant down a few times CU everyone got covid and it crazy um but a lot of free money came in which helped uh and then inflation happened which was the killer you know sales dropping cuz people didn't want to eat out too much cuz prices were going up our food costs were going up you know double at least double for everything at least you know box of eggs you know Quint tripled not even quadruped it Quint tripled you know box of lettuce Quint tripled you know I don't know about these three four 5% inflation numbers it was like 500% for some items so yeah it was very intense and in the midst of all that um you know we just decided to move on and we sold you know initially we wanted to just sell one um but someone came and wanted two two of them and we're like Okay cool so one guy bought two restaurants we kept this one the one that I went to the passive one um because it's passive um and yeah so anyways going back to the numbers first restaurant we bought for 400,000 430,000 we had to put up about 120,000 in total Capital including the down payment and uh working capital um the second restaurant was actually a How I Bought The Second Store much value ad play which because we knew uh the business pretty well uh we got a second location for a lot cheaper and this was off the market too so later when you get into the business and you start buying up other place restaurants or other businesses you're you're going to almost want to do this off market so whatever is on bis myell or loopnet or bisben is like trash you know that's what they say you know that's where deals go to die right it's you want to get these pocket listings or things that haven't hit the market and a lot of times it doesn't hit the market cuz the seller just doesn't want where to get out there hey did you know this person is selling the restaurant and all the employees know it's just hectic you know cuz sometimes it takes many months to offload something and for those many months the employees are going to be like hey why are you selling it you know and their their safety you know comes into question so it's just not a good way to do it so a lot of of times these transactions are off the market and to in order to get off the market listings you have to just be in the be in the no you know you have to know Brokers you have to know people you have to know the community you have to know other restaurant owners you know so the second one is because we have the relationship with the broker that gave us the first restaurant he was like Hey I know this guy that's wants to sell but he doesn't um want to put in the market uh so we're like sure we'll go check it out and you know it was very cheap and it was a good restaurant um so we decided to go for it and you know we spent about 50,000 on the remodel I think we I think we got the restaurant for about $200,000 when it was a better restaurant than the first one so the first one we paid $430,000 and we overpaid the second one it was a much better restaurant and we got it for half the price just because we we were in the no um and it was off market and we got really lucky with that one and we put in like some money to fix the building um that one did really well uh and we sold that one for a profit meaning even after we made all that money uh and we sold it and we made even more money by selling that restaurant um so that's how value ad is really really really um profitable you know when you do anything like real estate or business value adding is kind of the way it is where it is so you buy something that's already profitable and you try to add value to it by fixing you know the building or doing a remodel um that's where am I going oh that's kind of that's kind of the way to go um now now the third restaurant is even more interesting Third Store um the third restaurant the owner so it was a owned by the dad who was very old and he passed away and he owned the building the son doesn't want to have anything to do with the business which was a burger shop so the sun leased it out to one of the cooks and said hey do you want to run the restaurant just pay me you know month-to-month you know x amount of rent so the cook was doing that and the cook wanted to just retire and say hey I'm going back to Mexico you know I'm done um now the son's like I'm not going in there running this restaurant and he's sitting on this property that's like breaking apart you know Plumbing everything's messed up so he reached out to his friend who owns a huge uh Food Distributing Company which we bought from he's like do you know anyone looking um and because we put ourselves out there and we talked to a lot of people you know Distributors wholesalers business owners he's like yeah I do know I do know a guy you know and he called me he's like hey are you looking for another Burger Shop I was like yeah of course he's like I know a guy he owns the building um he wants to sell the building for the business you know too I was like okay so we met with him and you know the seller was like Hey you know we want this amount and I we I told him I like can't do that amount you know like the buildings is breaking apart the business has no value you know it's like an asset sale because the business is like barely doing any sales and this you know the the cook is there just doing everything um so he understood you know so we couldn't come to an agreement and we gave him our number and couple months later you know he came he came by and he didn't want this to be I'm sure he could have made a little more If he if he lift this on loopnet or co-star things like that but he didn't want to because um he didn't want like his church people to know and you know it sounds weird but you know you just when you have when you're older and you have money you know there's some things that you just you're particular about and he didn't want someone from his community to know or someone from his community to buy the business or buy the property off of him and later be like oh look I bought the property off of this guy and I you know he couldn't run it and I made it into this and that's the last thing he wanted so for that reason he wanted to sell to someone just out of the community right these two Asian guys you know so yeah we had a meeting with him we gave him our number it was too low and a couple months later you know he came back and he said you know I'll do it um so yeah we bought the building um also doing um seller carry note um so instead of going to the bank we down paid a very small amount uh like 15 20% and the seller carried the rest as a loan a low interest rate fixed loan and he actually preferred to do that with so there's some tax advantages so you don't pay a lot of tax up front uh it's rare but there are sellers out sellers out there for Real Estate that would actually entertain to do a seller carry for 80% even 90% of of the purchase price it's rare but there is tax advantages to that so there might be sellers willing to do that where they just have a lot of money they don't really need all that cash and all that tax liability up front so they'll prefer to just defer it and and sell a carry it so we got very lucky with that one where we were able to down pay just you know um small amount and we got the property with it um so you know we were paying the loan so we were paying rent to ourselves and that rent went to pay the loan so we inherited the restaurant for free but the restaurant wasn't like profitable so what we did was we went in there and we put in our own we put in our own formula which we know worked cuz we've been doing it now for like 3 4 years uh we put in you know a little more menu items we remodeled the place for another 50,000 um we added EBT we added takeout apps like Uber Eats Postmates you know because the other owner didn't know how to do that uh we just kind of improved the food a little bit too I feel like at that point I kind of knew the food pretty well so I was able to um bring food items from the other restaurants that I know were popular and then kind of you know it was the same demographic of customers so you know I brought over some items that you know were pretty popular and and you know people in the third restaurant they liked it so it helped with the sales um and we got lucky it worked out and that's the restaurant that we still have um because it's very passive it's low maintenance we have few employees there um yeah it worked out um and when you own the real estate it's actually very good because you have a lot of exit strategies so another another um thing to discuss is when Why Being On A Lease Sucks you're on a lease your hands are tied if you want to sell the restaurant I mean okay so if you're on like a 5year lease right and and after year one or year two you're like hey I'm done I don't want to do this anymore whether you just don't want to do it anymore because you hate it or whether you you can't do it anymore because you're losing money and you're out of funds um you don't have any options the landlord is going to say okay well I'm going to sue you for you know $200,000 that's how much you owe for the next four years uh and you're screwed right so you make a deal with the landlord hey can I just pay 12 months worth can you let me go and some landlords will let you go like all right just give me 12 months I'll let you go um so that's the worst casee scenario uh another scenario is you could sell the business try to get out of those lease by having someone else come and take over the lease your landlord could actually just stop that and say no I'm not going to do that I don't you can't make me do that you know this is the lease is with you I'm not going to get a new tenant which I don't like um to take over your lease so the landlord has all the control there um and you could try to sell or you could or or the landlord could say fine do that I'll help you and you no one wants your business which happens all the time you know businesses cannot sell it's a very particular transaction you know it's not like stocks or real estate where eventually you'll go like some business just cannot sell so yeah if you're on a lease like you better make sure this is something you want to do for the X amount of years that you sign up for because you have to assume that there's no exra strategy um or you know sometimes the re or what we did is we got these long leases like 20 years 15 20 years so that if after year two year three year four we're like hey we want to move on and the business is still profitable we're able to sell the restaurant because a lot of people do look for restaurants and if there's enough years left on the lease you know it's a lot easier to offload um because the buyer needs SBA loan and SBA loan needs at least to see at least 7 10 years on the lease all these reasons um we got lucky we able to offload the restaurant because they were still profitable they were still doing well uh we made money off the sale as well um the third restaurant is we own the property so we don't you know we have a lot of extra strategies so if you own the property let's just say worst case scenario um your business goes to crap you could always just sell the property for land value you know as vacant and you might make your money back or you might even make profit if you got the real estate at a low price so at the worst case scenario it's not really a bad case scenario which is amazing right if you own real estate because all for all those years you've paid down the equity or you've paid down the loan uh so you've built up equity on the on the property right um so for example let's say 10 years later this business goes to crap and is shut down it's vacant you know I don't want to run anymore my partner doesn't want to do it anymore the manager leaves the sales plummets we could always sell the real estate and by then we're going to have a lot of equity there so we might actually even make money by closing it down and selling it so so having a real estate is a very powerful thing if you have a business um but it's always easier said than done because in order to have real estate you you need to have a lot of capital to to purchase it and often times you know you do a restaurant it's in like a retail strip and you can't purchase the whole retail strip it's like $5 million $10 million right if you have a freestanding which is what we have a freestanding building I mean in LA county it's goes for at least 1.5 million you know so you know 20% down payment on that is like 300,000 and SBA rates today to get a SBA loan on a owner user building it's like 10 11% I mean your loan payments are going to be like $112,000 you know so it doesn't make sense today um unless you get really lucky and find a seller that's willing to seller car you at a really low rate or something like that but anyway um where am I going I'm going to Hmart to pick up some items for dinner and I'm going to be stopping by uh mitsa Japanese Market to pick up Raman for my wife and I'm still debating if I want uh like the udong there or if I want to get Ono Hawaiian I'm still debating CU I'm a picky eater so yeah yeah so that was a lot of things that I talked about you know just all over the place um if you have any questions let me know in the comments uh I'll try my best to answer but you know it just it's kind of hard to answer every question but I'll try my best um yeah that's about it and see you guys in the next video