Buying a bar??? Thoughts on this??? (interest)

[cdelena]

It is very easy to lose money in a small bar, especially if you have to count on employees that you don't have absolute trust in. There are plenty of ways to run a bar within a bar and bleed the establishment. It takes close management and good employees.

[forest beekeeper]

I am a member of the 'Bar committee' at my local VFW post. We have four employees. For decades this town was a mill town, until 2 years ago when the mill closed.

We are able to offer 'pull-tab' instant raffles. 50 cents a ticket, with winners in each bucket: one $500 winner, a five $100 winners, and a bunch of $1, $2, $5 winners. These 'pull-tab' raffles are our biggest draw, more so than the booze.

Our VFW post once had a huge savings account and mutual funds; but the bar has been loosing money steadily since the mill closed. We are emptying the mutual and savings to keep the bar going.

A block away is an American Legion post [where I am a member]. Two full-time bartenders, and one part-time. Both full-timers are members and they volunteer half of their hours [because they get good tips]. Even with the mill closing their bar is making money, and building their savings.

Between these 2 'private' clubs are 3 other 'public' bars. I say 'private' but consider it is a legal status. Anyone can step in the door and either show a membership card from any post; or a person can look around and if you recognize any patron ask them to invite you inside. Legally both are 'private' but folks must step in through the doors before we can make a profit.

The public bars in town are dying. Flashy lights and constant efforts to draw crowds, bankruptcy is not uncommon.

A single owner who lives downstairs, is going to work the bar full-time, and has 3 part-time bartenders to help him, could survive.

A bar needs a crowd. Being associated with a club like the VFW or American Legion helps.

Focusing on a mill would help. Or a factory. Set your 'half-price drinks hour' to match the factory's shifts.

If you have none of these to provide a crowd for you.

Then I would suggest that you convert it to a restaurant. Maybe a micro-brew pub / restaurant.

[Oildog]

Watch out for liability insurance. One drunk gets in trouble and you can be sued. Bars seem like a great idea, but they are a lot of effort for a small profit margin.

[jmking]

A friend of mine here in the States owned and operated a bar for 30 years, sold her bar and moved back home to Scotland. Everything stated on this thread was told to me by her especially that it is a cash business and thieves abound. You must run this business yourself or else! The other complaint are the drunks who often get out of control by fighting and pissing the bathroom floors up even in the seat they are sitting in. She became one tough cookie through the years! Good luck.

[ndfmnlf]

How much income does a bar of this size expect to make annually? The Vanguard Total Bond Market Index (VBMFX) currently yields 4.58%. If you stick your $160K in the VBMFX, you'd be earning about $7300 annually. That's without doing any physical work on your part. If you think the bar will earn significantly far more than that given all the hassles of running a bar, then go for it. Otherwise, I'd put the money in the bond fund or other stable income producing passive investments.

[forest beekeeper]

Originally Posted by ndfmnlf

How much income does a bar of this size expect to make annually? The Vanguard Total Bond Market Index (VBMFX) currently yields 4.58%. If you stick your $160K in the VBMFX, you'd be earning about $7300 annually. That's without doing any physical work on your part. If you think the bar will earn significantly far more than that given all the hassles of running a bar, then go for it. Otherwise, I'd put the money in the bond fund or other stable income producing passive investments.

4.5% is pretty low.

With all of the advantages to 'Active Investments' why invest in a passive one?

[ndfmnlf]

4.5% is pretty low.

With all of the advantages to 'Active Investments' why invest in a passive one?

There are other investments that yield more than 4.5%, but you'd have to accept higher risks. Long term corporate bonds are yielding 6%. Junk bonds are yielding 8 to 9%. Bank of America is yielding 7.59%. Citigroup is yielding 8.35%. Frankly, I'd rather put my $160k in Bank of America and get paid 7.59% (excluding potential capital gains) than in a bar that requires my constant attention and physical presence...where I have to worry about payroll, overhead, liabilities, etc.

Which is more risky, Bank of America or the bar around the street corner? Which is more likely to go belly up next year? For the bar investment to make economic sense to me, it has to generate returns of at least 20%.

On your second point, how do you define "active" and "passive"? To my knowledge, passive income is defined in the US tax code as income (such as investment income) that does not come from active participation in a business. Examples are investments (interest, dividends, capital gains), real property rental, royalties, alimony income, etc. Active income is derived from active participation in a business (eg running a bar, restaurant, professional practice, etc).

I'd rather have passive income. Money that comes to my account automatically without me having to work for it appeals to me. Not that I'm lazy....I already have my hands full making active income in my professional practice. Besides, eventually, when people are too old to generate any active income, they will be totally dependent on the passive kind. We might as well prepare for the inevitable.

[KevK]

It can be a hard business. Bars have lots of competition and bar laws can be changed. Bars are not popular politically and politicians love to take on bars. Many bar owners in Atlanta got cleaned out when the city changed the laws last year to require a 2AM closing time. Not only did the bars lose 2 hours of business every weekday and 3 hours on Friday and Saturday, competitors opened up shop across the border in DeKalb County where they can be open until 4 or 5AM and sucked much of the business out of Atlanta. So I would ask some questions like how long the bar has been there, what do the neighbours think about it, what kind of clintele does it have (older and friendly vs younger determines whether you will need a bouncer or not). I would go there on Friday and Saturday to see what kind of crowd they have.

[forest beekeeper]

Originally Posted by ndfmnlf

...
Which is more risky, Bank of America or the bar around the street corner? Which is more likely to go belly up next year? For the bar investment to make economic sense to me, it has to generate returns of at least 20%.

I do apartment buildings where I commonly see 15%.

...
On your second point, how do you define "active" and "passive"? To my knowledge, passive income is defined in the US tax code as income (such as investment income) that does not come from active participation in a business. Examples are investments (interest, dividends, capital gains), real property rental, royalties, alimony income, etc. Active income is derived from active participation in a business (eg running a bar, restaurant, professional practice, etc).

'Active' activities also have depreciation, which lowers your taxable income. With 'active' activities you can shelter your income to the extent that you no longer pay income taxes.

...
I'd rather have passive income. Money that comes to my account automatically without me having to work for it appeals to me. ...

Ditto.

"I'd rather have active income. Money that comes to my account automatically without me having to work for it appeals to me. And it keeps me from paying inocme taxes."

Tenants work. Tenants pay their building's manager who holds a portion for repairs and deposits the rest. I do the books, and use the losses against my otherwise taxable income. As the property builds equity, form time to time, I remove the equity in the form of tax-free cash.

[the painter]

My biggest question to ask is if this is a "profitable" business why only 160K??? As a former bar owner I will say that there will be no time for a 2nd job or a life. How much are you willing to give up? How much can you afford to loose? Have you had the books audited? Many bars keep 2 sets of books by the way, so here to you may have a problem. Check with the local police and check activity for the bar too. Go set for a Friday and Saturday nite especially after midnight till close, you will get a better idea on the customers. Bars are not the best investments unless you have a francise backing you and even then.....