When evaluating an investment property, a quick helpful tool that can be used to assess how well a tenant’s business is performing, is the health ratio.
A health ratio shows the percent of rent that is being paid to the owner verses the tenant’s gross sales.
Simply take the annual rent paid and divide it by the annual gross sales.
For example, if a tenant is paying $100,000 a year in rent and the tenant’s store sales are $1,000,000, the health ratio would be 10%. The ratio is industry specific, below are four different industries and what is considered “healthy”.
Grocery: 1-5%
Restaurants: 6-10%
Fitness: 15-25%
Apparel: 10-15%
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