Industrial real estate can be a good investment. While industrial properties aren’t as glamorous as other types of real estate, they’re vital to the economy. There are many avenues of industrial real estate, and buying these types of properties can be one of the most profitable ways to invest your money. As compared to the over-concentrated residential market, not only are industrial properties easier to find, but they are much less of a hassle to deal with as an owner.
Industrial properties require much less maintenance, and industrial businesses tend to sign long-term leases in order to keep their businesses running smoothly, which results in steady, long-term income to help pay off a mortgage on the building.
There is almost always a business or investor looking to purchase industrial buildings, and unlike residential property, it is not necessary to make repairs or improvements to your building in order to sell it because the real estate market is not saturated with other similar properties. Now that we’ve established the concept of industrial real estate, here are the reasons why you should definitely go for this option. Investing in industrial real estate can be good business for savvy investors.
The basic rule of thumb about industrial real estate investing is that you should never put your eggs in one basket. Buying industrial real estate means that you’ll have your hands full with lots of different options.
Because of the unique attributes of industrial real estate, investing in it can lower the risk profile of your overall portfolio.
The reason people consider buying industrial property is that it’s a hassle-free way to earn a steady income as compared to other ventures. Most industrial property leases are double (NN) or triple-net (NNN) leases which results in a totally ‘hands-off’ investment for the landlord.
For residential investments, you’ll have to take up regular maintenance, renovations, and improvements to keep your property striving in the market. And if the property is miles away from where you live, get ready for long trips for inspections and approvals.
On the other hand, investing in industrial real estate means minimal concerns and hassles. They require less maintenance.
Industrial property tenants tend to sign longer leases to keep their businesses running smoothly. How frequently would you want to relocate your warehouse? That’s exactly the reason why industrial, especially warehouse investment properties, ensure long-term benefits.
These lease agreements can be as long as 20-years with multiple options to extend. Further, the lease will usually include provisions for annual increases in the rent. Long-term leases with annual rent bumps result in stable and predictable cash flow for the investor
Generally speaking, a good tenant will maintain the building to a high standard, as the appearance reflects on their business. This means industrial buildings can be relatively low maintenance as the tenant is likely to attend to any maintenance issues quickly themselves.
There’s always someone looking for a large industrial use building to begin or expand their business. That’s why, if you ever plan to put your industrial property up for sale, you won’t have a hard time getting good cash quickly.
There’s a less likely chance of oversupply and market saturation when it comes to industrial investments. Industrial properties are more expensive than residential ones. But, they allow their tenants to earn through them, which makes sure they’re always in demand.
Industrial real estate gives you a simple, clear-cut way to turn your capital into regular income returns. That’s because, with industrial properties, there are fewer anomalies involved as compared to residential properties.
Usually, an industrial rental building consists of a large, vacant space and a limited office area. These buildings are either used as storage or production areas, which makes them easy to manage and maintain.
If you’ve ever had some bad luck, Residential tenants are less likely to make repairs to your property in the case of mishaps and accidents.
With industrial real estate tenants, that’s not the case. Occupants of an industrial building will have a stronger sense of responsibility towards the property.
Also, industrial buildings are usually four vertical walls covered by a roof and accompanied by an office.
The worst part about real estate investment is to facilitate your property for another tenant once the previous one moves out. In the case of retail or residential tenants, you’ll probably occur some cost in maintaining that.
With industrial real estate properties, these costs are relatively lower. As we mentioned before, these buildings are usually simple and straightforward. This means you won’t have to change much to make it usable for the next tenant.
Also, attributing to the steady demand, these buildings go out easily so you won’t have to bear the vacancy costs for long.
Industrial real estate investments give you the highest yields compared to other real estate sectors.
If you start buying industrial properties today, the increment in E-Commerce popularity will hike up the demand for warehouses and distribution places.
The best part about industrial real estate properties is that they’re not restrained to one single purpose. An industrial building doesn’t have to be solely an office, manufacturing, or logistics building.
You can rent it out as all three for one single company, or hire multiple tenants as well.
Rather than renting one large storage space, companies are gradually turning to small warehouses in multiple cities. This has led to consumer demands for shared industrial properties.
No discussion of the benefits of investing in industrial real estate would be complete without mentioning the potential tax benefits. All real estate investments are tax-advantaged. Industrial real estate is no exception.
Depreciation – All industrial real estate held for commercial purposes is a depreciable business asset. Depreciable assets offer significant tax benefits for commercial investors, and even more so for industrial properties. Depreciation is a non-cash expense. These large non-cash deductible expenses result in paper losses when paying the tax man but do not impact distributable cash flow. In certain situations, the paper losses can be used to offset taxable gains generated from the sale of other assets.
Capital Gains – Most industrial real estate investments are held for more than one year. The result is profits upon sale of the asset are taxed at the lower long-term capital gains rate.
Since the eCommerce era, industrial real estate properties have been on an absorption surge. This outlook suggests more expansion/development opportunities for investors.
Yes, that was our list of reasons, why you should start investing in industrial real estate. Whether you choose to invest in industrial or residential sectors, real estate investment has risks involved in all cases.
However, if you weigh your advantages against the disadvantages, and study the market flow correctly, you’ll see that industrial real estate has minimal risks and maximum benefits in the long run.
Nevertheless, it’s a promising investment sector today. Although you’ll need hefty capital to take your first step toward investing in industrial real estate, the initial investment will pay you well.
Who invests in Industrial Real Estate?
Due to the amount of capital needed to invest in the industrial market, most investors are large players with deep pockets. That doesn’t mean smaller investors are excluded.