Tired Of Apartment Buildings? 6 Reasons Why Retail Properties Might Be A Better Option

Jun 8, 2018

Investing in commercial real estate properties may be a great idea, especially for those investors who want steady cash flow and stable income. But to succeed, you must first understand the complex factors of investing in a commercial property, along with financing options, property control, and lease options.

As you may know, commercial properties are those properties which are leased out as a workplace rather than a residence. They include retail, industrial, and office buildings, restaurants, shops, and warehouses.

But, like every business, commercial real estate has potential pitfalls. That’s why it is crucial to make a careful analysis of the market so you can make the right property selection.

In this article, we will cover the main reasons for commercial property investing, and more specifically, investing in retail properties.

Read on and find out why retail properties are better than residential, and how they make the right investment choice for wealth building.

What Affects The Retail Properties Market?

Before we go to the WHY, we must first figure out what drives the Commercial Real Estate market.

Just like residential, retail properties are also driven by demand. Still, the retail market mostly depends on factors such as location, the local and global economy and the population growth in that area.

Some other factors may impact the demand for retails too, including demographics shifts, infrastructure development, management, and interest rates.

The economic cycle is also affecting the Retail Properties market. In a time of a strong and solid economy, the chances of achieving success when investing in commercial properties, especially retail, are pretty high. This drives up competition.

Why Investing In A Retail Property Is A Smart Move?

The U.S market is now growing and it’s now a good time to invest in retail property. The retail market just starts warming up. Looking back at historical cycles, this indicates 7-15 years growth cycle coming up. This gives you, the investor, a chance of longer growth cycle of properties.

Another great thing about retail properties (whether it is a small strip mall or a huge shopping center) is their inherent resilience. In fluctuating economies, different industries will be affected differently. Having tenants from different industries protects your investment and ensures that your investment never stops producing income for you.

These properties also add diversity by having multiple sources of income within a single investment. With more tenants, you are less prone to feel a drastic change if one tenant goes out of business or does poorly because of a number of reasons. This also offers consistency of returns and prevents you from relying on a single tenant only. In addition to multi-retail tenants, you can simply invest in a single high credit tenant with a long term lease (10 years or more) with returns of approximately 6% yearly that are nationally recognized and strong financially.

From an investor’s perspective, retail properties can offer a real pleasure. Purchasing a retail property gives you the right to set higher rents. Having set a strategy to hold on to the property for 10+ years (before considering a sale), this investment offers stability and passive wealth building. Peace of mind, right?

Major Reasons For Investing In Retail Properties

reasons for investing in retail properties

  1. Stable Income – Many investors are tricked into believing that residential properties offer truly passive income and soon find out that this is not so. Return rates in retail real estate properties are much higher and more secure since these leases have a longer duration (between 5 to 10 years). Retailers do offer passive income which results in a positive cash flow month after month. You don’t even have to lift a finger.
  2. Lower Risk – Compared to apartment buildings, retail properties have lower vacancy risk because they consist of 2 or more units. A lease which is under market average triggers tenants to sign for 5-10 years or more. So, in turn, they get a bit lower rent and agree to make necessary improvements to the leased property. You, as an owner are released from any responsibilities (interior changes or updates). A single credit tenant, like Walgreens offers you long term income with very little to not receiving your yearly return.
  3. Income Potential – Unlike apartment buildings, retail buildings have higher rent payments, so the investor will earn much more income. Also, the annual returns are much higher since the property size is bigger and these buildings may have several tenants. This is probably the best reason to invest in commercial real estate rather than residential. Retail properties often have an annual return off the purchase price between 6 % and 12% cash on cash with leverage involved. This may not be the case with residential properties.
  4. Tax Benefits – Retail property investors have many tax benefits (depreciation on the equipment- such as roofs, air conditioning, lighting etc.).
  5. No Expenses – The best thing about retail properties is that the tenants pay all the operating expenses. Along with the base monthly rent, the tenants pay a pro rata portion of building costs, maintenance, real estate taxes and property insurance. Unlike residential properties where the property owner pays all the property expenses, here the tenant pays all the costs directly, including taxes. The only expense of the property owner is the mortgage. Companies such as WalmartDollar Tree, or Dollar General are an example of retail investments.
  6. Appreciation of Asset Value – Retail property investment provide higher appreciation in value compared to other types of investment. Proactive management is just some of the reasons that influences the increase in value of these properties since it makes cost effective improvements. The result is improvement in desirability and usability of the asset. Upgrading, renovating, or restructuring the lease may be also important for adding value to the property.

How Can A Buyer’s Agent Help When Getting Into The Retail Sector

Buyer's Agent can help when getting into the retail sector

As an investor, you will face a lot of challenges and you should consider many elements when evaluating retails. If you decide to carry all that burden on your back, the job can be stressful and frustrating. That’s why you need a Buyer’s Agent to do all the legwork and to negotiate the best deal for you.

That’s why, as a buyer, you should consider hiring a Buyer’s Agent. A Buyer’s Agent can help you find the ideal property within your budget, help you in financing, and finally, get the best possible deal.

A good Buyer’s Agent can easily adapt to your requirements and address many issues related to the purchasing process. And, the best thing is that Buyer’s Agent services are free for you, the buyer. The Buyer’s Agent splits the commission fee with the Seller’s Agent.

If you want to know more about the benefits of hiring a Buyer’s Agent, check this article.

To Wrap It Up

Finding the ideal retail property can be time-consuming and a tiring process. If you don’t know the key elements of this commercial real estate asset, you can easily get lost and maybe spend a fortune on an unprofitable property.

To make sure you invest in the right retail property, you’ll want to hire a Buyer’s Agent. Westwood Net Lease Advisors act as a Buyer’s Agent and can quickly negotiate a hot deal. As seasoned representatives, we will make sure to protect your interests and limit risk exposure.

Focused on the retail sector mostly, Westwood Net Lease Advisors can help in what’s important to know when evaluating retail equities. Understanding retail properties can really make a difference once you get into your own business.

Not only that we will save you time and remove stress, but we will also help you find a great retail property to invest in. And the best thing is that our services are free of charge for you, the buyer.

The seller is responsible for all the costs. We split the commission fee with the Seller’s Agent once we have made an agreement.

The step to scheduling an appointment is very easy. Just fill in the application form, and our team will reach out to you in a matter of hours.

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