Purchase commercial real estate w/intent to start business

[Luca Mastrangelo]

I want to buy commercial real estate as an investment with the intent of using some of the space to do something in the food space.  I'm on cape cod MA, upper cape specifically, where hundreds of thousands of tourista flock each summer but also live in a town that has enough year round residence and business that a food place can stand on it's own.  My first step would be coffee and expand from there. I currently work a regular well paying 9_5 job but would quit down the Rd once the business is launched and work for free/significantly less than I make now.  

On cape cod the zoning  for a cafe/food establishment is very challenging. Places that can support a restaurant/food are very difficult to come by because of septic and zoning requirements.

I've looked at about a half dozen places over the last year. None of them had the right mix of variables to get a coffee shop going.

A small +1800 sq ft bldg just had a for sale sign put up on it. It currently has 2 business with 1 year leases. Leases are 1100 and 1200/month. Taxes are $3800/year. Insurance is $800/year. One side is an antique store the other is a ductless ac showroom/installer. Bldg was sold to current owner in 2016 for $239k. Owner added $80-120k in improvement. Gutted and all new. New electrical, new windows , siding , roof , paved 14 spot parking lot. , New handicap accessible bathroom on both sides etc....

Owner is going to list at $429. I don't think he'll go less than $399 and maybe not even that.

Here's my plan. Need help. Poke holes and please point me in the right direction.

Buy bldg for $399k ish. I would have to get a commercial loan.  Since I wouldn't have a business in there right away I would not qualify for a small business loan up front. I would haveto take a commercial investment loan. 25% down and has to cash flow 1.25x ebitda. Using 5.25% and 20 year amoritization schedule the month payment would be $2021. I would plan on keeping tenants for the remainder of their leases and in August when the antique store lease is up move into that space. I'd like to keep the heat pump place for another year or two while I build out the business.

Doing just coffee I'd have to so about 150-175 people a day @$3.5/person. This assumes a $1200 rent for the space 2 employees at $15/hr and 25% cogs of revenue on coffee. Doesn't include any other revenue sources. Just trying to get into the ballpark of things. Location is A+ (right off highway with easy on/off) and the Cape in general and this area in particular is a food dessert. There's a a Dunkin or 2 and another bakery in a down town setting within 5 miles. Not to say there isn't any competition around but no legit good coffee and none as conveniently located.

In broad strokes plan would be to:

1. Buy now

2. Collect Rents trhu Aug next year

3. Continue working my reg 9-5 now while I finalize concept and shop for some used equipment

4. Work with town to get zoning in place. Won't be an issue. Has septic with grease trap and in the right zoning. Needs a waiver.

5. Launch coffee next Sept

6. Grow business and quit current job. Essentially buying a new job. I already have a 401k nest egg I can let mature for 10 years and retire from so money isn't primary motivation

7. Expand into other side of bldg when time is right.

My next steps are to figure out what cap rates are and what retail spaces rent for on a sq ft basis in the area. with that info I should be able to more accurately determine what's a good sale price for the building.

when I was looking into cafes/ coffee shops before, I read a lot of the facts about how many fail and why they don't work etc... I've lived in the cape for three years now, which is not a long time, but since I've been here I have noticed that there is absolutely no unique food options. I shouldn't say none but very few. The cape is about 10 years behind  Boston and Boston is about 10 years behind New York in terms of food and drink.  I don't think there's any ramen shops out here. No unique donut places either. One or two third-wave Coffee locations on all the cape. That type of stuff just doesn't exist here. I think there's a lot of pent-up demand for that type of offering. people are seeing that more and more and would make the stop if that's their cup of tea so to speak.

Tandem coffee in Portland Maine is the type of coffee destination that I seek out when traveling.

Good info/facts on cap rates that at least help frame the problem.

https://www.calkain.com/research_reports/net-lease...

After some feedback from the small business forum on Reddit and some more investigation  this is where I'm at: 

Biggest risks are over paying for bldg and zoning from town. I've talked to town and it requires a waiver but shoulsnt be an issue since it's not in a historic district and has the right septic system

Any experts with knowledge of Retail space renta on upper cape? Cap rates?