I am at a point in life where I am transitioning from being an employee to an investor. I have done well in my investing and generate a good amount of income. I was looking into other places to invest and diversify.

Some of my friends are into flipping houses. They buy, fix up and sell. I find it too tedious and has a lot of hassle. The rewards are also not commensurate (IMO).

Restaurants fascinate me, so I was wondering if there was a way I could invest in a restaurant, say a Chipotle. How can I buy a small stake in a store? Is that even possible?

I am not necessarily looking to generate much money, I am looking to gain some experience in investing outside of the stock market.

Maybe I can start an LLC of my own and own 1% of a Chipotle here, and 2% of a McDonald's there? Something like that. I don't want to be part of the operations.

All ideas are welcome as I am very flexible and uncertain of what the options are (I am no expert in this).

Great question. And hoping that this is not derailing, but I have a similar question regarding investing in local small businesses. I have no wish to own, run, and manage a business, but wouldn't mind being a silent partner, so to speak.

Are small, local businesses attracted to equity investing vs. debt? How would one go about finding the opportunities?

If I recall someone posted here about a guy that did that.
A lot of those places are franchises, so basically he would find someone who wanted to open say a McDonald's but didn't want to front the whole cost. Form an LLC with them and be a minority stakeholder. I am pretty sure to do that you would need to bring more than a couple percent to the table, I would guess 10+ percent based on the size of initial investment.
I am sure you were just using it as an example, but chipotle are all corporate owned, so all you can do is buy the stock.

Risk return on restaurants is asymmetric to the downside

I Am A Critic said:

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Hard to tell if this is another of your trolls but the margins on restaurants are too low to be worth it. Your money is better of in an index fund. I'd look at syndicated real estate instead.

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I troll in other parts of TA like General and Politics because that is the nature of those boards. Not in the Business part of the board because money is serious business and I have managed my money well. I have learned a lot from here also. I am at a point where being an employee is no longer exciting and I want to see what else I can do. Lots of smart people on this board, so wanted to get ideas.

I have heard that margins are less, but my motivation is to explore something outside of the stock market, not to make a lot of money necessarily. And to diversify more.

I have no idea about "syndicated real estate" but will google.

cslifer said:

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If I recall someone posted here about a guy that did that.
A lot of those places are franchises, so basically he would find someone who wanted to open say a McDonald's but didn't want to front the whole cost. Form an LLC with them and be a minority stakeholder. I am pretty sure to do that you would need to bring more than a couple percent to the table, I would guess 10+ percent based on the size of initial investment.
I am sure you were just using it as an example, but chipotle are all corporate owned, so all you can do is buy the stock.

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Yes I just used Chipotle as an example because we order takeout from there a lot. Wasn't aware all stores are corp owned. I find the restaurant business fascinating and I like McDonald's as well (am eating healthy so I don't go there much).

I was wondering if there are places which advertise something like "We are building a McD in zip code 90210-1234 and are looking for investors. The estimated cost is $5Million".

This allows outside investors to buy whatever they can afford (maybe there is a minimum), so they become stakeholders in that store but don't have any power to run the store.

What you say above seems to be more like if one knows a person who is opening a restaurant and you form an LLC with them. I don't have any such contacts though.

I've never seen anything like that. A lot of franchise restaurants are owned by companies that themselves own many franchises across different brands. I kind of doubt that many McDonalds are owned by individual franchisees….i might be wrong.

I know two McDonald's owners, one has 4 and the other has 2, so small owners are out there but I have no idea how common they are. I can maybe see an opportunity getting together with a small operator like that and helping him expand.

chris1515 said:

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I've never seen anything like that. A lot of franchise restaurants are owned by companies that themselves own many franchises across different brands. I kind of doubt that many McDonalds are owned by individual franchisees….i might be wrong.

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Many franchises have independent and company owned stores. McDonald's has independent stores. The one in Huntsville, TX used to be when I was growing up

I wa just pointing out that a lot of the non-company owned stores are part of another company that may own many units across multiple brands.

chris1515 said:

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I wa just pointing out that a lot of the non-company owned stores are part of another company that may own many units across multiple brands.

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Right ... like this company based in Sugar Land.

https://dhananigroupinc.com/

Cyp0111 said:

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Risk return on restaurants is asymmetric to the downside

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Not the right way to use that term.

Restaurants are risky business.

No idea if popular chains have a system that you can throw some money at without owning a location which is about the only type of restaurant I would look at.

Whataburger has an independent model at least from an ownership perspective, or at least it did before it was bought out. Their food also sucks now and is not consistent.

infinity ag said:

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I am at a point in life where I am transitioning from being an employee to an investor. I have done well in my investing and generate a good amount of income. I was looking into other places to invest and diversify.

Some of my friends are into flipping houses. They buy, fix up and sell. I find it too tedious and has a lot of hassle. The rewards are also not commensurate (IMO).

Restaurants fascinate me, so I was wondering if there was a way I could invest in a restaurant, say a Chipotle. How can I buy a small stake in a store? Is that even possible?

I am not necessarily looking to generate much money, I am looking to gain some experience in investing outside of the stock market.

Maybe I can start an LLC of my own and own 1% of a Chipotle here, and 2% of a McDonald's there? Something like that. I don't want to be part of the operations.

All ideas are welcome as I am very flexible and uncertain of what the options are (I am no expert in this).

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You have done well with your investing and generate a lot of income, but are looking into getting into something that doesn't necessarily generate much money? I'd keep doing what you have been doing.

If you put your money into something to get a very small interest, I'd suggest that you had best know the other owners very well. Particularly if you are not part of the operations. And with such a tiny percentage, you have no say so anyway. And, if they need your money to do a deal then there is a reason they can't put up their own cash. I think it costs like $1.5 to $2.5 million to open a McDonalds, and they should be able to come up with that if they really want to own a business.

I have never seen what you are describing, i.e., someone allowing someone else to buy in for a small percentage. Probably happens, but none of my clients ever bought in or sold a small fraction of their business.

I would personally want nothing to do with a restaurant, as an investor and certainly not to operate. Finding workers who are not knotheads and who will show up to work, having an inventory that is subject to spoilage, and being open nearly every day of the year are not appealing to me. I am sure there are some real money makers out there, but every restaurant client I had went out of business except for two Mexican restaurants. Both of them had over 90% of their employess being family members, siblings, children, aunts, uncles, etc.

I Am A Critic said:

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Hard to tell if this is another of your trolls but the margins on restaurants are too low to be worth it. Your money is better of in an index fund. I'd look at syndicated real estate instead.

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That's what most brick and mortar companies are.

Restaurants even more so as 90% fail in the first year. But more restaurants are happy to give it go and fail in the same space as designing and retrofitting a space to meet code for a restaurant is stupid expensive.

There's always exceptions of that cool bar or food concept that actually makes it 5 or 10 years and pays back investors in multiples. Just far, far from the norm. And even if they turn out successful there's just a good a chance of white collar fraud leading to bankruptcy.

So like he said, if you want to have anything to do with the food industry you either need to be on the supply side (generally dominated by old family run companies or large distributors) or the real estate space.

chris1515 said:

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I've never seen anything like that. A lot of franchise restaurants are owned by companies that themselves own many franchises across different brands. I kind of doubt that many McDonalds are owned by individual franchisees….i might be wrong.

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PE backed money is expanding more and more every day. But there's generally going to be individual ownership opportunity in any space they invest unless we're talking 8 figure upfront barriers to entry.

AgLA06 said:

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I Am A Critic said:

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Hard to tell if this is another of your trolls but the margins on restaurants are too low to be worth it. Your money is better of in an index fund. I'd look at syndicated real estate instead.

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That's what most brick and mortar companies are.

Restaurants even more so as 90% fail in the first year. But more restaurants are happy to give it go and fail in the same space as designing and retrofitting a space to meet code for a restaurant is stupid expensive.

There's always exceptions of that cool bar or food concept that actually makes it 5 or 10 years and pays back investors in multiples. Just far, far from the norm. And even if they turn out successful there's just a good a chance of white collar fraud leading to bankruptcy.

So like he said, if you want to have anything to do with the food industry you either need to be on the supply side (generally dominated by old family run companies or large distributors) or the real estate space.

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Would love to hear more about this.

Restaurants, in general, are terrible investments. You have inventory with a short-term shelf life that will rot on you if not used in time. That same inventory shows a propensity to grow legs and walk out the back door. Staffing is a continuous challenge because most foodservice work is entry-level, so you have a revolving door of new hires coming in to replace the latest no-shows/no-calls. Hours can be brutal, depending on the type of restaurant. Add the fact that the industry is the first to take a hit when the economy slows down because restaurants are 100% discretionary spending and that's going to be a NO from me, dawg. Been there, done that for 15 years.

Invest in food truck start ups maybe?
Own the truck/trailer and lease to the small biz owner. If they fail, you still own the equipment, though you'd probably want a GPS tracker or 2 on it to recover it if needed.

Disclaimer, I know NOTHING about this area of investing.

Can you invest in Buc-ee's? Because that place is printing money.

The problem with this idea is most operators that you would actually want to be in business with don't need / want your money.

Investing in a single location is extremely risky, the way to make money in qsr / brick and mortar retail is to be a scaled multi-unit operator with economies of scale and business acumen.

I work in multi-unit retail, the amount of wacky crap that will bring a good store to its knees would shock you. Could have road construction in front of it for a year, space next to you could be remodeled, could find out your sewer line collapsed and have to tear up the entire parking lot to replace.

It's not for the faint of heart.

Your other option is trying to become an LP in a PE fund that focuses on the space. Not easy to do, but easier than trying to source worthwhile investments on your own. Will need to be able to write a big check though.

tx4guns said:

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Can you invest in Buc-ee's? Because that place is printing money.

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I've long said that when that thing ever goes public, and I have no idea if or why they would, I'm buying a bunch of it!

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Restaurants fascinate me

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I'm right there with you infinity. I recently retired after working in the Food & Beverage industry for over 40 years. I was on both sides of the business...working for suppliers focused on multi-unit quick service and casual theme restaurants. I also headed up the Quality Assurance department for two multi unit national chains. It was fast paced and every day was different. And it was fun!

There are some great stories too. Norman Brinker buying Chili's when it only had 25 stores and growing it to a national chain. Bob Basham and Chris Sullivan opening Outback in Tampa. Or Manny Rosenthal (as in the Rosenthal Meat Science Center at A&M) becoming a multi-millionaire after perfecting vacuum packaging of portion cut steaks for Norman Brinker (who started the Steak & Ale chain) in the late 60's.

All of that said, I rarely materially invested in the industry and would not suggest that one should either. The problem? One can never predict or know when the next food safety crisis will occur or to whom.

You mention Chipotle. Great company. Here are some other companies....Foodmaker (Jack in the Box), Subway, McDonald's, Taylor Farms (a large produce supplier to the industry), Boar's Head, and Blue Bell Ice Cream. All of them are great companies...but all of them had food safety issues that cost them a significant amount of money. In the case of Subway, back in 2010, many Illinois franchisees suffered great losses due to tainted produce from a local supplier. I mention Blue Bell because the Kruse family had to sell one-third of the company to Robert Bass to fund their business after their Listeria crisis back in 2015.

No matter how hard one focus' on Food Safety, the next crisis is potentially right around the corner. I've worked with the Taylor Farms folks. Great company with a dedicated commitment to Food Safety. Nevertheless, they recently supplied onions to McDonald's that were contaminated with E. coli.

The likelihood of a crisis is slim...and I'm probably sensitive to food safety because that was one of my priorities. Regardless, just wanted to share my perspective.

Good luck!