In this video, Joel, Principal Broker of NNN Invest, discusses how much money is needed to own a multi-tenant property.
Joel is an advocate for finding properties in particular areas that he believes have high-value. He discusses what the average cost for different strip centers may cost.
What locations does Joel recommend for finding property locations?
Joel is an advocate for finding a property that is in a strong suburban to urban location because he believes in the high-value of the dirt in these areas. Purchasing a property in these locations can also help with keeping these spaces occupied so that when one tenant vacates the property, there is a list of interested tenants waiting to occupy the space. This is good news for an investor because there’s a chance that the property will always be filled with tenants which can equate to more stable cash flow from this type of property.
What is the average cost for this type of property?
Entry-level cost for a retail strip center in this ideal location usually comes with a higher price tag of 2.5M and up, a down payment of 25-30% or more is usually required upfront, and a loan to finance the remaining balance. From there, the prices can increase to 4-6M, and shopping centers that have grocery stores such as Publix or Kroger, the price can then increase to the $8-15M purchase price.
How does Joel help his clients with investing in these types of properties?
Joel typically has a discussion with his clients to understand what their goals are, the down payment, and if the client has a 1031 exchange. Based on these metrics, Joel helps the client formulate a plan to search for a property within their price range that will also match their needs. Joel typically advises against owning a retail center with a lower purchase price in a weak location. He believes lower-priced properties in weak locations come with minimal higher cap-rates and have higher risks. If the economy fluctuates, Joel believes that these locations tend to decline and tenants can no longer afford the monthly payments as consumer sales drop. Investors can then be left with a marginal property, loss of cash flow, and possible loss of initial down payment equity from when they purchased the property.