The world of real estate is one of the most popular and most profitable businesses to invest in. Real estate is the playground of the rich and any wealthy person can testify to the wonders, a business where the value of your assets is always predicted to appreciate.
Over the years, real estate has diversified into many forms and types, with each person or group creating a trailblazer in their specialty, yet, most people are still oblivious to one of the best real estate gold mines; retail real estate.
What Is Retail Real Estate Investing?
Most people tend to confuse retail real estate with commercial real estate. Well, retail real estate is actually a specific category under the broader commercial real estate industry. Commercial real estate refers to the purchase or management of properties such as land and building for-profits basis, the retail real estate industry is much more specific.
Retail real estate is a type of real estate that primarily concerns itself with establishments that build and develop shopping and entertainment properties.
The meaning is that they build malls, window shopping complexes, minimarts, clothing shops, florist shops, well they build or buy the building, and then retailers purchase a particular unit or the entirety of this building mostly on a lease basis. This means they cater to retailers that you are probably familiar with like; shopping malls, clothing shops, florists, pharmacies, coffee shops, and so much more.
They are involved in the renting, leasing, managing, buying, and selling of these retail outlets.
It’s a common and popular real estate investment choice for investors for quite some time as the market demand is usually present if you do your due diligence checks well and annual returns are high.
Let’s explore this in-depth.
Why Invest In commercial Retail Real Estate?
Retail real estate offers high Returns on the investment
One of the key features of retail real estate and the reason it has so many investors jumping into the space is the fact that it has a higher return of investment than most other types of real estate.
The statistics show that the average return on investment for residential properties in America is from 3% to 5%. However for retail real estate, the returns range from anywhere between 9% and 12%, this difference in percentage makes a substantial difference in profits. Much like REI Capital Grows Retail Real Estate Investment Fund which has an equity token offering that is projected to provide a 9% anual return rate. And REI Capital Income which is offering a bond or debt token to provide consistent source of income to its investors.
Retail real estate offers longer leases
Unlike, other forms of real estate where you deal with lease rentals annually or every 6 months such as the field of residential real estate. The retail real estate industry however has a higher tendency for longer lease renewals, this is because the tenants have an established physical customer base so moving can affect this, and hence they tend to opt for a longer lease period.
Another reason is the fact that the amount of capital invested into the building by the tenant. If you ever invest in the field of retail real estate, it is best to allow your potential tenant to determine how long they would like to stay on the lease.
Retail real estate offers smaller deposits
Typically, most real estate investments require a huge capital deposit before you get the property, however, this is different for retail real estate. You only need to pay a small capital to get these properties with most averaging at around $90,000 as opposed to a small apartment at $300,000 for a residential estate building.
Retail real estate offers low maintenance costs
Unlike residential real estate where the landlord Takes care of the maintenance and monthly utility costs, in retail real estate from the time of Lease the tenant caters to these by themselves and any other agreed expenditure. This saves you a lot of money and ultimately adds to your ROI.
Retail real estate offers market demand
There would always be people in a residential area who require zones for retail trade, as long as a population is there to sustain it, hence the demand for retail real estate is quite high and if you can get a strategically located property or building, you are set for smooth sailing.
There are many emerging factors that are proving why retail real estate is an extremly safe and profitlble way to get involved in real estate investing. Outside of the points we have just made Marcus & Millichap does an amazing job in this video by further breaking down the beneficial aspects of retail real estate investing!
Conclusion On Why Retail Real Estate Investments Are Doing Well
The retail real estate investment would always be a wise decision for those that are engaged in it. It’s a cheaper and safer way to break into the world of real estate.
However, understand that like all business ventures, you have to be careful and cautious as you proceed. Take prudent steps, learn all you have to do about it, make sure you practice “due diligence” steps, and never skip any.
Understand the level of capital you are willing to commit and the business and have a plan. Real estate is a lucrative industry but only the calm, irrational decisions would sink you in the trash in this business.
Weigh the pros and the inevitable cons such as the sensitivity to the economic cycle and the difficulty in moving a building should residents start to move away from a specific location.
Ultimately, it’s a test of your skill and good decision-making. Contact REI Capital Growth today to see how you can get involved in our Commercial Real Estate Fund!