Shopping centers are a tremendous asset class given that you're aware of the fundamentals and choose a property carefully before investing. Even though strip malls are commonly seen, they're rarely talked about as an asset class. This guide offers valuable advice on what beginners need to know before investing in a shopping center.
When it comes to commercial real estate investing, location is certainly the most critical factor to consider. You'll need to determine whether the neighborhood of the shopping center is safe and convenient and examine its automobile and foot traffic.
Turn to the local Chamber of Commerce or census bureau to study the demographics, including the number of households, the average age, and income levels of the population around the facility. The results should match with the characteristics of your target audience or buy persona (if you developed one).
A traffic count of 20,000 cars a day should be great for the shopping center. You should be able to obtain the traffic information from your local state, county, or city traffic department.
One of the most critical things to consider before investing in a retail center is its existing tenant mix. Ideally, the property should have a diverse mix of quality tenants. This not only ensures reliable tenants but also caters to all the shopping needs of customers, making the shopping center a one-stop-shop for most of their needs.
To examine tenant quality, go through tenants' rent rolls, payment records, and credit files. Talk with the tenants, if required.
Check the Cap Rate
Cap rate is an incredible assessment tool when comparing different commercial properties for investing purposes. It helps you evaluate the potential return on investment (ROI) for the property. The cap rate can be calculated by dividing the net operating income (NOI) by the current market value of the property.
The Age of the Commercial Property
Although every property needs regular maintenance, older properties are typically subject to greater repair and maintenance issues than newer ones. This doesn't mean you totally avoid aged properties. Just make sure that you're informed and prepared for any costs that may arise.