Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
An awesome article caught my eye recently when I was looking for some information on commercial real estate.
It suggested that the next big thing in commercial is – food trucks!
No joke.
Now personally, I love food trucks. It’s fun to have the variety that you get with different vendors. And while I know people who own and operate them, I have never once thought that they were part of the commercial real estate space. And I have no idea if they’re actually a good investment.
The article I read walked through a lot. The author stated that the street-food business, which includes food trucks, is a $1 billion industry that grew by 8.4% between 2007 and 2012. And that between 2010 and 2015, the food truck sector of the business experienced an even higher growth rate of 9.3%.
He also wrote that even though the returns are there, investing in one may not be right for everyone. His view is that it would be a good first commercial real estate investment for people who know food and can manage the expenses and develop a solid business plan.
Good advice, if not just a little obvious.
He went on to discuss the business and why it might make a good commercial real estate investment…
The Cost of Owning and Operating a Food Truck
The author wrote that food trucks offer opportunities for entrepreneurial people who love food but find the cost and risk of opening a restaurant to be prohibitive.
He added that by comparison, a food truck costs much less to open. The biggest expense is the truck itself, which can range in price from $15,000 to $100,000. Staff salaries may also be a factor, but with 78% of food truck owners employing four or fewer people, this should not be a huge expense.
Food truck owners will also need to pay roughly $10,000 in licensing fees, $2,000 to $4,000 in annual insurance coverage, $400 to $800 per month for commissary, a few thousand in licensing fees, and a few thousand in initial inventory.
And altogether, the cost of opening a food truck ranges from approximately $25,000 to $115,000.
Are Food Trucks Profitable?
The author found that food truck owners typically sell food priced between $8 and $10. And that a gourmet food truck may charge more, but a food truck’s goal is to feed people relatively inexpensively.
He said that based on a number of factors he studied, food trucks can generate anywhere between approximately $50,000 and $200,000 in annual revenue, and that 50% do bring in at least $200,000.
Not a bad gig I’d say.
Should Investors Know How to Cook?
I thought this was an interesting question, and I was wondering it myself as I was reading.
The author pointed out that yes, many investors in food trucks are also chefs or cooks and that knowing how to cook the food in one’s truck will offer reduced costs, as it negates the necessity of paying a chef’s salary.
Additionally, because typical food truck entrepreneurs spend many hours each day running errands or securing ingredients for their truck’s operation, knowledge of cooking helps ensure that the truck has the proper foods and supplies.
So it sounds like, at least from an economic or business standpoint, that it makes a lot of sense for the investor to also be the operator of a food truck.
The author pointed out, though, that that doesn’t always have to be the case, because a successful investment in a food truck depends even more on knowing how to gauge the market.
What’s the Bottom Line?
The author’s conclusion is that food trucks are a great first-time commercial real estate investment for people who know food and are passionate about preparing it for others. Their mobility allows for trying different markets while their lower cost makes it easy to make a relatively cheap investment in a commercial property.
However, he also cautions that because food trucks require lots of time and energy to run, investors looking for less involvement in the day-to-day operations of a property should probably look for more attractive opportunities elsewhere.
I don’t know, though. Owning one sounds like a hell of a lot of fun to me.
What do you think?
I’m curious to hear your thoughts about food trucks as an investment opportunity. Share in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.