If you guess wrong and drive a place out of business, your hope is that the next tenant is more profitable and can handle the overhead. Chain restaurants are typically pretty good about this because they know their revenue potential accurately ahead of time.
If you hypothetically take 100% of the profits of the renter, they won't be in business long term. There likely will be a gap between when they stop paying rent and you are able to evict them. There will also likely be a gap between that point and when you get a new renter, particularly when your rent is so high.
I agree that the goal is to maximize income, but trying to take 100% of the profits of the renter is not a way to maximize long term income.
only if there's a monopoly on real estate. I find that unlikely.
The landlords that win seem to be the landlords who play the political subsidy and tax games, not just good developers.
[0]
We don't want more A&W's and Starbucks, but that's what eventually happens here. The only places that survive are bars.
Also, you're right. Costco exists too.
One: the shop often wouldn't let you buy up their whole supply
Two: there are likely other restaurants in the area, so that's 20*N boxes a day
Three: lots of countries have resale laws that prevent this
Four: that's a lot of time to spend every day when you can get a single delivery every week / two weeks instead
Five: the delivery often includes the collection of the used bottles (when using glass) and that otherwise can cost a lot
Any half-sane shop would love the giant piles of money you're spending and negotiate a way to get you a nice big supply with an even easier pickup process than filling a cart.
> Two: there are likely other restaurants in the area, so that's 20N boxes a day
Even better. Imagine a shop saying they don't* want to ramp up to selling ten times as much product out of aisle seven with no extra work beyond staying in stock.
> Three: lots of countries have resale laws that prevent this
If you buy a shelf-stable food, you can't resell it? Why would a law like this ever exist?
> Four: that's a lot of time to spend every day when you can get a single delivery every week / two weeks instead
This is a better reason, but you'd think the huge volume of the sale would get you at least a mild price improvement.
> Five: the delivery often includes the collection of the used bottles (when using glass) and that otherwise can cost a lot
If it costs money to set things out for recycling, the local government is doing a bad job.
For older, less popular restaurants, maybe, but a salad at Sweetgreen is, what, $10-$15? And that's fast casual. Clearly overhead is being passed on to customers.
I assumed this vendor was selling bottled or canned soft drinks. Why that is, I couldn't say (just as I couldn't say why they're renting a dishwasher, why they're paying a linen cleaning service rather than purchasing a washing machine, etc...).
With linen, when you go through a big volume, it is infinitely easier to use a linen company than to do it yourself on site. You’d have to buy industrial washers, pay rent on space to keep them, know how to service them, pay staff to operate them, etc...
If you’re a large chain, perhaps you could bring those operations in house. If you’re tiny, you could do it yourself. But if you’re seeing over 100 guests a day, there’s no reason not to use service companies for these two examples.
> With linen, when you go through a big volume, it is infinitely easier to use a linen company than to do it yourself on site. You’d have to buy industrial washers, pay rent on space to keep them, know how to service them, pay staff to operate them, etc...
How much volume could a small restaurant like this need for cleaning towels? More than a McDonald's doing top sales in the state? They get by just fine on a single washing unit[1]. Dump the dirty towel buckets in the washer, add detergent, run. When it's clean, distribute them into buckets of sanitizer so they're ready to use. Takes a few minutes, that's it; usually you'd do it during downtime. It's been too many years to remember now, but that machine was probably run a few times a day (maybe once every 4-6 hours). The process was very streamlined and efficient, and I can't imagine what involving a third party would bring to the table (perhaps if there was legitimately not floor space for a single washing unit in your building?).
I guess if it's common, it's common. I must not understand the business constraints involved, or maybe it's prevalent in certain areas and not in others. The U.S. is a very large and varied place, after all, to say nothing of the rest of the world. I'll have to ask my friend what her family restaurant does for a small-scale perspective.
[0] this type here, more or less: https://4.imimg.com/data4/DW/DT/MY-9292814/dishwasher-500x50...
[1] it was a lot like this (with the coin mechanism removed). Not glamorous, but got the job done just fine: http://i.ebayimg.com/images/i/271466627178-0-1/s-l1000.jpg
Also maybe because you don't want to use tap water...
The landlord's costs go up, too.
This is what killed retail in the UK. Amazon certainly made a difference, but given a choice, some people actually enjoy mall shopping and eating.
But between huge hikes in business rates (commercial operating taxes) and rent increases, retail simply isn't as profitable as it was in the 90s.
The rent increases are pure greed and predatory extraction. There certainly hasn't been any correspondingly huge explosion of costs for landlords.
Have you looked over their books?
Landlords have to pay:
1. taxes 2. maintenance 3. insurance 4. mortgage costs (they're usually leveraged) 5. legal and lawyer fees for contracts and disputes 6. costs of unrented space 7. accounting costs 8. costs of just keeping track of all the changing laws 9. depreciation
In Seattle, landlords are considered an unlimited source of funds for social programs by the City Council. For example, if the spouse of a tenant damages the apartment, the landlord has to pay for the damage, not the tenant.
Your counterargument:
> Have you looked over their books?
> Landlords have to pay:
> 1. taxes 2. maintenance 3. insurance 4. mortgage costs (they're usually leveraged) 5. legal and lawyer fees for contracts and disputes 6. costs of unrented space 7. accounting costs 8. costs of just keeping track of all the changing laws 9. depreciation
I think your argument is "there are lots of costs", which is true and people don't appreciate that a landlord can have a hard time.
But it doesn't work as an argument about how much costs have risen or fallen.
Most of the costs you listed have either stayed the same or gone down in recent years, so it doesn't appear to support your side of that argument.
Mortgage costs in particular have gone down a lot in recent years. Mortgages are great if you can get them, because they are so cheap now.
6 has gone up but that one is cheating. It's like saying landlord's income is lower than the amount it "should" have gone up, which does not work as an argument that landlords actually have to pay out more. If 6 has gone up due to longer voids, those voids (until recently) are usually due to raising the rent, their own decision, so again do not constitute landlords paying out more.
9 is an interesting mixed bag, as depreciation is only relevant as a true outgoing cost if you're going to sell the property someday, in which case you should only be counting the interest component of the mortgage, which has gone down, as well as the change in property price, which has probably gone up by more than depreciation (until recently).
Dismissing depreciation is a serious mistake. All buildings deteriorate, become obsolete, become inefficient and maladapted to modern conditions, and simply "wear out" over time. It's pretty obvious if you look at a city and notice that there aren't many old buildings. Old buildings get knocked down and replaced all the time.
Just think what happens when the city says you have to install fire sprinkers. Or do earthquake upgrades. Or tear all the cladding off because it's been ruled a fire hazard. Or your HVAC system is obsolete. Or the wiring isn't up to code anymore. These all happen.
The generally accepted rule is buildings have a 30 year life.
But think of it another way. Businesses are subject to supply&demand, too. If there was some high margin low risk business, entrepreneurs would rush into it, thereby erasing the high margins. If this is not happening, it's usually because the government via regulation or law, has prevented competition.
There's nothing about property management that suggests it is immune from these forces.
I think you are saying "there are substantial costs" again.
It only works as an argument about rising costs if backed up by "and the real costs to the landlord caused by depreciation have actually risen".
Do you have anything to back that up?
I think most people take the view that landlords have generally benefitted, until recently, from steadily rising property prices, and this nearly always greatly outweighs depreciation over 30 years. I.e. the cost of property doubles more often than every 30 years, so you can use the bonanza to buy replacement buildings which offsets the cost of old buildings being taken down.
And that doesn't even consider cost of the land, which does not suffer depreciation even if a building has to be replaced, and is often the majority of the cost of purchase.
> There's nothing about property management that suggests it is immune from these forces.
But there is a very significant obstacle to these forces acting fluidly according to the ebb and flow of commercial forces! I would happily be a landlord (until recently and maybe even then) on the basis of commercial thinking, but the avenue is not open to me because I don't have access to capital. Capital is around, but it will tend to be allocated first to an entity with an existing portfolio.
Also, in the town where I live, even if I had a few million, I would struggle to become a landlord of commercial property larger than a tiny corner shop, because very few units are for sale. When one comes up, which is not often, there's a secret bidding war because pent up demand exists as does the money behind it, and buyers simply cannot find something. This is despite a very large number of empty units, with owners who seem to be happy keeping them empty (I know several companies that have tried renting be turned away on various grounds, sometimes "we are not interested in renting it at all, we have plans for it in 10 years", others "we want personal rent guarantees from all the directors as well as a large deposit".) Heck, even renting is subject to bidding wars and personal interviews to decide which company should be allowed to rent among several candidates (I've been involved in this twice as a business tenant, and several times for residential, so I'm not speculating.)
I lost money every year in it, and finally gave it up before it crushed me.
Sure, I stink as a businessman. But that's also my point. It ain't an easy business to make money in.
Not if you've owned the place for a long time and seen rent and value appreciation.
I didn't understand this. It may not be feasible to buy 100 cases of pop at a regular grocery store, but isn't Costco/Sam's Club set up for that?
I do think it comes down ultimately to real estate prices. Major metros in North America have gradually become unaffordable for the middle-class over the past 20 years. It's not surprising that it's the same story for small businesses such as restaurants. Businesses have to pay workers more (because housing is expensive) and they have to pay their landlord more (because commercial rents are high). All that profit margin is ending up in landlords' pockets.