Commercial investors who aren’t scared to take a risk for potentially high rewards will enjoy investing in retail properties. A retail building’s success is obviously tightly connected to the health of the local and national economy, meaning investors will be riding high during the peaks and feeling low during the valleys. Below we’ll provide a ‘starter pack’ of information for investors looking to get involved with retail properties.
Investing in Retail Properties: Income
Retail investors make money from leasing their building’s space to interested businesses. Writing the contract can be a complex process with many negotiations taking place over a long period time. This is where an experienced broker’s knowledge can come in very useful. Investors benefit when their tenants are willing to sign a long-term lease for the property. If investors aren’t constantly stressed about filling an upcoming vacancy, they can focus on getting more profit out of their investments. Retail leases often include a percentage of the business’ profits for the year, as well.
Investing in Retail Properties: Controlling Risk
I mentioned above that retail properties are heavily influenced by the economy. But there are steps investors can take to safeguard their investments before they put money down. Ideally, the retail property will already have a robust tenant in place with a long-term lease signed. Investors should also consider how necessary their tenant’s services are. For instance, a grocery store is likelier to weather a recession than a high-end jewelry store, because everyone needs food, while diamonds are a luxury.
Investing in Retail Properties: Location, Location, Location
Investors should also study the area’s average income and foot traffic. Location is everything when investing in retail properties. The building’s tenant may offer the best services in the world, but if no one is around to buy it, the retail investment will go under. Investors need to understand the zoning laws in their city as well. The dream tenant may remain a dream if the retail property isn’t regulated for their services.
Read our piece on Investing in Office Buildings to learn more about commercial investments.
Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.
She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.