The insights which are shared by commercial real estate professionals via social media and Youtube can be invaluable for those looking to start investing in commercial real estate. There are free Youtube classes on even complex real estate finance and valuation modeling.
Recently, I came across an excellent analysis on buying a strip mall. One particularly good place to find investing ideas is on Twitter where #RETwitter has a number of active participants who share real estate insights often particular to the asset class they invest in.
One of the popular commercial real estate Twitter accounts belongs to an anonymous user who goes by Strip Mall Guy with the Twitter handle of @RealEstateTrent.
He shares great insights on investing in strip malls and is often answering questions new commercial real estate investors have like, “how much does a strip mall cost” or “are strip malls good investments”
He breaks it all down from experience and provides what metrics he thinks are important to consider when looking to buy a strip mall.
He recently shared a thread on Twitter called, “How to Buy Your First Strip Mall.”
What I found really interesting was his insight into how important rents are to retail real estate. In his thread he continually highlights the importance of having strong real estate data. I think data is becoming increasingly important to real estate investing and those investors who end up with the best real estate data for an area create a competitive advantage when buying residential or commercial properties.
After his explanation on the importance of rent data, he goes into how an additional data point, sold and for sale info is extremely important.
How Much Does a Strip Mall Cost to Buy
Further down the thread he explains why the rent data is so important. The importance of the rent data is your rent roll is going to show the actual value of the strip mall.
Below is the example he lays out. I think he does an excellent job clarifying it.
Finding the Value of a Strip Mall
A strip mall is 10,000 square feet and the average rent is $48, but your research tells you the market rent is actually $36.
Phantom Rent, Phantom Value:
$48 rent X 10,000 square feet = $480,000 annual income
$480,000 / 5% (the market cap rate) = $9,600,000 asking price
Actual Rent, Actual Value:
$36 rent X 10,000 square feet = $360,000
$360,000 / 5% (the market cap rate) = $7,200,000 actual value
Later in the thread he lays out a number of scenarios why rents are off what the local data shows. Finally providing the scenario but with the rents flipped.
A strip mall is 10,000 square feet and the average rent is $36, but your research tells you the market rent is actually $48.
Real Value:
$48 rent X 10,000 square feet = $480,000 market annual income
$480,000 / 5% (the market cap rate) = $9,600,000 actual value
Asking Price:
$36 rent X 10,000 square feet = $360,000
$360,000 / 5% (the market cap rate) = $7,200,000 Asking Price
Even further down he shows how this change would lead to an almost $2,000,000 profit for the real estate investor. It’s definitely insightful and I would recommend reading the entire thread, especially if you are looking to make your first commercial real estate investment./
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