Commercial Real Estate Investing From A-Z Pros and Cons of: Retail / Office / Self Storage / Mobile Home Parks
In this episode we will learn the pros and cons of investing in a few asset classes: retail, office, self storage, and mobile home parks. We are interviewing Jeremy Roll, a passive real estate investor since 2002.
Read this entire interview here: https://montecarlorei.com/passive-investing-retail-vs-office-vs-self-storage-vs-mobile-home-parks/
What are some pros and cons of the following asset classes: retail, mobile home parks, self-storage and office?
Retail
What I don’t like about retail going forward is what’s going on in the next 10 years, as far as predictability. Some of the challenges that I see, some of them are continuing and some will be in the future include: are people going to continue to go stores or are they actually going to migrate online even more and more? And if the answer is online more or more, what does that mean for the retailers?
Mobile Home Parks
I love mobile home parks. And the reason why I say that is because if you do your research, you’ll find that it probably has the lowest turnover ratio in terms of tenancy of any asset class I can think of. I believe the national average turnover ratio is about 9%, which is very low. There are certain apartment classes that have 40 to 60% turnover, depending on the type of building and location. I love mobile home parks because of that. And I love the fact that they’re serving lower income people, and that I see a need for lower income housing and affordable housing for a very long time going forward. So there is that predictability that I was talking about. There is predictability of demand. Predictability in lack of turnover in terms of cash flow. And, if you buy the right profile, which is very important, where most of the tenants are owner occupied and not renter occupied. You’re probably going to have more predictability in terms of having less problems.
Self Storage
That’s another asset class that I really like. When you think about how the US is changing from a demographic profile, we’re aging over the next 10 years. We have a lot of people moving, and projected to move to Florida and to Texas to retire. What I love about self-storage is that when people retire, they typically downsize. And I see that there will be a need for self storage as a result when these people move, or even if they’re living there and they downsize. In certain locations, I think they can be great. One of the challenges with self-storage is that it’s very low cost to build and it can be built relatively quickly. The barriers to entry are low. If you’re going to invest in self-storage, the supply and demand factors in the market you’re looking at at the time are critical, because you may have a competitor pop up in a year or two that you weren’t expecting.
Office
I have multiple office investments right now as well. But I have the same challenge with office that I have with retail, for a couple reasons. And we didn’t get into one aspect of retail that’s a little bit of a predictability challenge, which is the same in office, which is tenant improvements. When you have a tenant that leaves, typically there’s some money to be spent to turn the unit around and make it ready for the next tenant. In retail, it can be quite substantial if they’re changing the entire use. Let’s say you have a record store that’s being turned into a restaurant. There’s a lot of money that has to go into that. And often you’re sharing that cost with the tenant upfront. The same thing goes with office. Between the tenant improvement requirements that may come up if you have tenants leave unexpectedly, that may come out of cash flow or reserves.
Jeremy Roll
jroll@rollinvestments.com