Retail with Residential on Top

[Rick Albert]

Hello BP Members!

I am looking into this form of real estate investing. I like the idea for diversification and a transition to something bigger than what I currently do (house hack and 

I would like to know if there are any nuances to this type of investing that I should be aware of. I'm assuming commercial financing for the most part. Have you noticed shorter vacancies? Is it typically employees of the retail that would rent? I understand every building and market is different, but it might be interesting to see if there are any commonalities.

Thank you!

[Ben Firstenberg]

I think the biggest nuance is commercial/retail leases can be very complicated and finding tenants can be somewhat difficult, although there are retail tenant brokers who can help with that. 

Not sure how much you know about retail leases, but they're typically NNN and frequently include provisions for so-called tenant improvements, meaning you front some money (I've seen anywhere from $10-50/SF) to build out the space for the tenant. Some times they pay that back on top of normal rent, sometimes they don't.

The good news of course is retail leases are generally much longer and therefore offer more stable cash flow. The quality of the tenant also impacts the cap rate the property will trade for, so if you're able to sign a high value tenant to a long lease, you can create a lot of value.

Hope that helps! Happy to talk more