Another CBM Original…
Whether you’re interested in jumping into the shopping center real estate investments, or you already own retail property, now is a great time to buy.
The marketing is surging, but price have by no means topped out (and are nothing compared to the pre-Great Recession boom). And there’s still plenty of inventory and deals to be had… if you know what you’re doing and understand the market.
Moreover, interest rates are at mind-bogglingly historical lows. And these rates certainly aren’t going to last forever. This may be your last ever chance to take advantage of such unprecedentedly cheap financing.
But the key to investing in shopping centers, as with any investments, is to act with the confidence. And that only comes with from knowledgeable, and well informed about the product you’re investing in.
Here are five crucial elements to keep in mind in your quest for productive shopping center investment properties.
Understand the Risks in Shopping Center Investments (And Don’t Over Extend Yourself)
As with any investment, real estate carries risk. In fact, risk is the name of the game with any form of investment – stocks, startup companies, product development. You name the investment, and guaranteed, there’s risk involved
You can put your money in the bank, and watch it grow at a pitiful .02% rate…but you can be assured its SAFE. If you invest those funds in real estate, the opportunities for rewards are significantly higher. But you also have to willing, and financially able, to part with those funds and possibly never say a dime of return.
There’s always a chance you could lose some, a great deal, or even all of the money you funneled into your investment. So you should only risk money you can afford to lose.
Understand the Shopping Center Market
Regardless of what you’re investing in, from real estate to stocks to new business ventures, you NEED to understand the market.
Even within the real estate sector, shopping centers are their own unique animal.
Property condition, location, area demographics, current tenant mix and allowable use type, among others, are all factors you must consider in selecting the shopping center in which you intend to invest.
If fail to consider any of these elements, or how they interact with one another, and you could wind up with a property that’s a real DUD (and squander your capital investment).
Choose Your Shopping Center Investments Wisely
Do your research. Analyze trends. Consider the retail and real estate markets in the area where the property the subject property is located. Be sure you form a COMPLETE picture of the investment you intend to funnel tons of cash into.
Do your work early, so you don’t end up lamenting your decision later.
Find The Shopping Center Best Deal (For You)
There are scores of brokers out there with product they’d absolutely love to sell you. And they’ll work hard to convince you the shopping center they’re selling is the hands down the best investment opportunity you’ll ever find.
Don’t be swayed, fooled or intimated by these brokers. They in business to do one thing: Sell properties (and the more than better). They may believe in the product they’re selling, and be convinced it’s a sound investment opportunity (and it may well be). But that doesn’t mean it’s the best investment for you.
If you (a) have a clear picture of your financial situation (and what you can risk losing), (b) you understand the shopping center market in the area where you plan to buy, (c) you understand the product, and (d) you’ve done your research – you know better than anyone what’s the best deal for you.
Basic Guidelines for Identifying Your Ideal Shopping Center Investment Properties
Sensible pricing – Always attempt to buy at or below market price, as buying above market properties only make sense under very special circumstances.
High occupancy rates – 80% or better occupied at the time of purchase.
Long term leases – Majority of tenant with five year (or more) lease terms, with ideally three (or more years left on those leases).
Strong area demographics combined with appropriate tenant mix – High area population and relatively high household income stats are key, but also the tenant mix must support the area population breakdown. For example, in a predominately Hispanic area, the tenant businesses should cater to the Hispanic market.
Loan-to-value – Target leverage is no more than 70% loan-to-value.
Here’s to Successful Shopping Center Investing
Follow these guidelines, you’ll be well on your way to building a productive and profitable shopping center portfolio.