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1031 Exchange Discussion Forum > Buying Investment Properties: Why Invest In Dollar Stores?

As you browse through a store that sells most items for a dollar or less, you may wonder how it generates enough income to pay expenses. If you look in your cart and see twice as many items as you would buy at a conventional retailer, therein lies part of the answer.

Coupled with their low overhead, dollar stores’ ability to sell a large volume of cheap goods that were purchased wholesale does more than keep their lights burning. It also makes them some of the most desirable tenants for real estate investment property. If you ask a triple net lease (NNN) broker to name public companies that make great NNN tenants, you are likely to hear two names besides McDonalds and Walgreens: Family Dollar and Dollar General.

The Rise Of Dollar Stores

In 2008, when the profit margins of many companies were reeling from the early effects of the recession, Family Dollar was the highest performing stock in Standard & Poor’s (S&P) 500 stock index, beating out financial stalwarts such as Apple, JP Morgan Chase, and FedEx for the top spot. The company’s two biggest competitors, Dollar General and Dollar Tree, fared similarly well.

For experienced investors, the great performance of dollar stores in the midst of the recession wasn’t too surprising. The dollar store sector’s business is largely determined by macroeconomic conditions. Just as McDonalds posted gains during the recession partly because it sells inexpensive food, major dollar stores profited because they sell a cornucopia of bargain foodstuffs, cosmetics, toys, and more.

If you are interested in buying investment properties whose tenants defy recessionary financial trends, investing in properties that a major dollar occupies could be a smart move.

When The Economy Improves

You may wonder: If macroeconomics affect the business of dollar stores, how should a property owner feel about having a dollar store as a long-term tenant? Could a full economic recovery precipitate a decrease in the store’s net operating income?

While a booming economy would make shopping at dollar stores less necessary for some consumers, it is important to remember that consumer confidence doesn’t recover as quickly as the economy that eroded it. Many consumers take a prolonged wait and see approach before they start spending more money on daily items, and some people will keep their recessionary spending habits for life, preferring to play it safe instead of assuming the future will go smoothly.

For investors, the key is to consult a property broker that has insights into the dollar store sector and can conduct a risk analysis using the sector’s financial projections. At Westwood Net Lease Advisors, we have these insights. If you are interested in buying investment properties that a dollar store occupies, we will use our proprietary database of on-market and off-market properties to find the best opportunities, and help you acquire real estate investment property on the best terms.

To discuss your investment plans, please call Chris Schellin, president of Westwood Net Lease Advisors at 314-563-2208, cschellin@westwoodnetlease.com, or use our contact form at http://www.1031-nnn-properties.com/about-us/contact/.
June 3, 2013 | Unregistered CommenterChris Schellin