If you’ve read our post on Why You Should Consider a Childcare Asset for Your Next Net Lease Investment and want to learn more about early education property investments, you’ve come to the right place. We’re exploring more details about this asset class and providing crucial considerations for when you’re ready to make your next commercial real estate investment.
Early Education Property Investment Advantages
Early education property investments are similar to some other types of CRE, but they also have some unique aspects. A few of those unique aspects make investing in this type of property advantageous.
Different Tiers for Investment
An Early Education real estate investment provides buyers with options that will give them different rates of return. Depending on which type of early education center you invest in, you can expect a higher rate of return.
Corporate schools such as KinderCare and Bright Horizons have many locations across the country, which can be advantageous. However, the return on investment in corporate schools is smaller than others because of how many units they have, as well as their credit.
Schools with Fewer Locations 100-200 Nationally
These early education providers are not as big as the large corporate schools but are still more hands-off than single-location operators. These schools could be a bit riskier than corporate schools but will give you a better return.
Single Location Operators
This type of early education property may seem like the riskiest investment, and that may be true. There is no safety net of multiple locations to fall back on and there is not a corporation handling the big picture. An investment in a smaller operator is more hands-on and requires more direct involvement. But, that can be an advantage and a case where the risk is worth the reward. The direct communication and relationship building you establish with the tenant can also be a positive factor.
This type of asset is in high demand throughout all phases of the economy. There is almost always more demand than supply for early education childcare because it’s a necessity in the workforce. Well-established providers with positive reputations often have long waitlists with competitive enrollment.
During the pandemic, early education schools and childcare providers were affected in one of two ways: demand increased due to working parents needing childcare during the day OR they had to shut down due to quarantine and parents working from home. Both scenarios provide windows for investors.
The switch to online learning during the pandemic was tough for working parents. Parents leaned on early education and childcare providers. These providers gave a place for children to be with other children while allowing parents to work.
However, the pandemic forced other childcare providers out of business and now that people are returning to the office (not able to work from home) there is an increasing demand for childcare availability. Investors may be able to take advantage of the current market and provide valuable community service by investing in new childcare programs.
Additionally, there is often an opportunity to invest in the expansion of a well-established early education facility that has a good reputation and high enrollment, but not the ability to finance the type of additions or remodels they need.
Childcare Assets Have a History of Strong Yields
We are seeing significant consolidation within the space and believe there is a strong window of opportunity for investors to benefit from attractive yields before this kind of asset is snatched up.
Clear Business Performance Indicators
When you invest in any property, you’ll probably have some idea of performance, even if it’s a general one. With education property investments, you can go into the deal with a good idea of your returns because tuition rates and enrollment are the clearest indicators of business performance.
Another thing that will impact your potential return on investment is the school’s potential for future recruitment. Because early education and childcare are almost always in high demand, enrollment rates should remain high and steady even as children leave or age out of school. Also, investing in an established school with a connection to their customer (parents and children) will create even less variability in sales because there is little student turnover, parents are likely to enroll siblings, and other people are on waiting lists to enroll their children.
Early Education Property Leases are Long-Term
Another great advantage of investing in an early education facility is leases are usually longer-term than those in other commercial properties. The length of a typical commercial lease is between 3 and 5 years. The length of a lease for an early education property is often 10 years or more. That provides a lot of stability and reliability for your revenue stream.
Getting Started with an Early Education Property Investment
If you’re interested in early education property investment, you might be wondering how you get started. The process may look a little different for each investor based on their location and the type of property they’re investing in, but we’ll cover the basics.
Finding an Early Education Property
Most early education and childcare properties offered for sale are kept private. If they are advertised at all, they are advertised with little or no information. The school’s name and location will remain anonymous. Early education and childcare properties offered on the MLS system may indicate that the broker is inexperienced and not working with a well-established organization. To make a good investment, you should work with a trusted broker who has experience with early education property investments.
Contracts and Due Diligence
As with any commercial real estate transaction, you’ll need to negotiate and sign a contract. This process includes the standard inventory of assets, leases, non-compete clauses, licensing, and due diligence clauses. An experienced broker will advise you on whether or not you should produce a letter of intent as a framework before a contract is written, as it can cause complications in certain circumstances.
Getting financing for an early education property investment can take many forms, just like securing a loan for other CRE investments. Options include SBA guarantee loans, home equity loans, and seller financing loans.
As the owner of an early education center, you will need a childcare license. You will need to close the deal on the property before applying for the license. There will be inspections and you will be given other requirements to get licensed. It’s recommended that you properly prepare early on for licensing to accelerate the process.
An expert in early education real estate brokerage can point you in the right direction when it comes to navigating your next investment.
Consult a SIG Early Education Real Estate Advisor
If you’re looking to get started, we have a team that specializes in Early Education Real Estate. We work with Franchisees and Corporations across the country as an outsourced real estate arm to assist with their growth and expansion. View our Early Education Listings to explore available properties. From a single unit Franchisee to Publicly Traded Companies, we can provide a multitude of financing and construction options to fuel growth.
We’re truly a one-stop-shop for all of your real estate needs. Call 844.4.SIG.NNN or contact us here to learn how we can support your next investment.