How to determine rent for a cafe

[Alex Martens]

Hi BP community,

I purchased a small cafe in a prime location in my town. The cafe is about 900 sqft with all commercial equipment, booths, coffee machines, etc. It is a turn key cafe. The purchase also included intangible assets like recipes and the cafe name. On top of all this, there is also a house that came with the lot. It is run down and needs a ton of rehab, but I saw this as added value. The previous seller was originally asking 200K for the property. I ended up securing this as a seller finance deal at 100K, with 50K down, and the rest amortized over 10 years at 5% interest. The breakdown of the purchase was 80K as the real property, and 20K for the assets of her business. 

I have two people wishing to rent out the cafe, and run it essentially as it used to be run by the previous owner, with the same name as well, which I now own. I am having a hard time coming up with how much I should charge for rent. I have heard that rent should be 8-10 percent of revenue…If that’s the case, would I just be trusting what these people will be saying as far as how much revenue they think they can bring in? I feel I have a pretty good idea as to what they should bring in, based off of previous owner’s sales, and how often they intend to stay open throughout the week. Also, since they want to keep the name the same, should I also be leasing out the name to them as well? I’m trying to compare other commercial properties that are similar and I am having a hard time doing that..I know commercial properties are compared differently than residential. 

My holding costs for the property are about 1200 a month. This includes budgeting for repairs and capEx. This is actually my first property. I wasn’t planning on going the commercial route, but for the location and the price, I didn’t want to pass it up. Thank you all in advance for any help you can give!

Alex