Industrial real estate properties fall into three categories:
- Warehouses
- Factories
- Storage spaces
These are the three most common industrial real estate kinds. Each sort of IRE has distinct benefits.
Industrial Real Estate Investment Benefits
Increasing Rents
Industrial real estate offers better rental yields. IRE generates higher passive revenue than residential property. US industrial property rents average 7.5%. This exceeds the 4% average for residential and office properties.
IRE is usually leased triple net, which boosts rental yield. The tenant pays rent, property taxes, insurance, and maintenance. Owners only pay the mortgage and shared area maintenance expenses (CAM). This setup boosts ROI.
Longer Leases (Stable Cash Flow)
IRE leases are longer and yield better than other commercial real estate. Industrial leases average 3-10 years. 25-year leases are possible. This is much longer than the typical one-year home lease. Longer lease durations provide investment stability and predictability. Knowing you’ll have a steady salary for years lets you budget.
Reduced Maintenance
Industrial properties require less care than other commercial properties. Most triple net leases require tenants to make all repairs and improvements. Industrial buildings have lengthier leases than other industrial real estate sites. As tenant turnover is lower, the owner will need to renovate less often.
Business trends
E-commerce is increasing industrial property demand. Online buying has skyrocketed. To meet consumer demand, firms require bigger warehouses and storage facilities. Since online buying is predicted to rise, this is unlikely to alter.
Blue Apron and Hello Fresh are even driving warehouse demand. These firms need room to store and ship their goods.
Ecommerce-Friendliness
Industrial property investors are also attracted by e-commerce. IRE is usually outside city centers. It’s perfect for businesses that store and ship inventory. Trucking companies also benefit from being near transportation corridors. IRE is cheaper than other commercial real estate. It’s cheaper for expanding firms.
Variety / Flexibility
Non-industrial commercial spaces have specific uses. An office building is meant for office use, while a retail store is for retail. Industrial buildings are versatile. Industrial commercial property’s flexibility makes it more appealing to enterprises that may need to modify operations.
Investment Security
Industrial real estate is a safer investment than other property kinds. These properties appreciate and are less market-sensitive. Businesses usually need storage and production space, thus these properties are in demand.
Industrial Property Sales Are Easier.
There is also the matter of tax easements. Certain types of industrial properties are eligible for tax breaks on the state and federal level. Each state is different, so it’s best to consult a tax expert in your state about this. Liquidating commercial properties is easier than residential ones. Because huge industrial-use buildings are continually in demand, commercial buildings require less maintenance and improvements. Residential properties in poor condition might be hard to sell. Commercial buildings sell faster for a good price. If you want to sell your property, commercial properties are easier to liquidate.
Reduced market saturation risk
The Drawbacks:
Like with every venture, industrial real estate investing has pros and cons.
Before buying industrial assets, consider these:
Long-Term Vacancy
IRE demand is rising, while long-term vacancies remain. Businesses might close or move. Finding a new tenant can take a long time.
Oversupply Risk
Industrial real estate is booming. This has raised concerns about potential warehouse and storage overstock. This might lower rents and property values.
Rates Increase
Recent interest rate increases are projected to continue. This might make industrial real estate more expensive for firms and reduce demand.
Less Access
Industrial real estate lenders are more cautious. If the borrower fails on the loan, these homes are harder to sell. Industrial real estate investments have less leverage.
Industrial Real Estate Investing
We recommend starting with industrial investments. An experienced commercial real estate broker can assist you invest in the property. The broker can identify and negotiate the best property. It’s best to have an expert on your team because the process is complicated and time-consuming.
Industrial real estate investing tips:
Do your market and location research first. Choose a trusted broker. Choose a trustworthy lender. Expect risks. Be prepared for them. Plan your exit. Have an exit strategy that can work at the beginning of your investing. In the middle of your industrial real estate schemes. And have a contingency plan for when you want to retire from the game.
Bottom Line
Industrial estate investing has various benefits. This sort of real estate investment is less volatile, appreciates over time, and provides predictable cash flow. Before investing, research the hazards. An expert broker can help you get started. Finally, have an exit strategy for selling industrial property.
Daniel