With so many choices available when looking at NNN investments, it can definitely be a challenge determining which tenant type of invest in. With choices including segments such as Automotive, Banks & Financial, Big Box Retail, Convenience stores, etc. the choices appear almost limitless. So how do you go about making a decision? The answer is to think along the lines of the investment continuum. More specifically, the risk levels associated with the investment, as well as the potential returns throughout the span of the investment.

As an example, certain retail segments may appear to be riskier ventures given the massive rise in online sales. With his risk however, the investor can expect greater returns. When looked at collectively, those specific investments may work well when evaluating turnover risk, coupled with the higher returns. On the flip side, tenants in other spaces such as casual dining may seem like a better alternative.  Credit Rated investments in this segment however will trade at lower capitalization rates, which in turn means lower overall returns. But that may not always be the case.

Choosing the right investment be it for a new investment or for a 1031 tax exchange does not simply lie on determining one industry over another- but rather looking at the whole picture with each investment. Physical location for example is a key determination in choosing an investment, having nothing to do with the tenant itself.  You can have the best tenant in the world, but if the space they are occupying unsuccessful for whatever reason, your turnover risk will be high, and your ability to re-tenant will be low. Alternatively if your tenant is weak, however the location is great (both on a market level, and on a physical level) your investment will always have value.

So ultimately choosing the right segment boils down to your willingness as an investor to take on risk. Understanding what makes these investments risky however is key in making the right decision. Choosing a market segment or industry is only on aspect to the decision making process. Other crucial factors such as Location, demographics, future trends, and tenant strength, all become just as important when finding the right investment.