Want to invest in industrial real estate? Here is a full guide to investing in real estate.
Let us guess – you’ve been contemplating real estate investment for quite a while. Here’s a secret! It’s a great idea that’ll help you pay off your initial investment easily while increasing your monthly cash flow at the same time.
However, there is another option – investing in industrial real estate.
We know, getting monthly house rent out of difficult tenants can be a grueling task. Not to mention the house improvements you have to go through if you plan to finally sell the property.
Nevertheless, it’s worth the effort. I use Personal Capital to monitor all of my cash flow and net worth. It’s completely free and you can link your real estate properties.
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However, have you ever thought about investing in industrial real estate?
While the residential real estate market is getting more and more concentrated these days, industrial property is taking its place as the more profitable real estate investment option of the two.
Why? With industrial real estate investment, not only will you get regular cash flow and higher returns, you can pay off your loans earlier than you would with residential real estate investment returns.
Don’t take our word for it, we’ve rounded up comprehensible data in favor of investing in real estate so you can see for yourself.
However, before we begin with our 13 reasons why you should be investing in real estate, let’s clear the mist for people who need some insight on the subject.
Table of Contents
What is Industrial Real Estate?
Industrial real estate is a part of a much larger picture. It’s a type of commercial property, which is bought and sold solely for business purposes.
Apart from retail and office real estate, industrial real estates are commercial properties used for industrial purposes.
A rough definition of industrial real estate is that they’re places that can be used as warehouse investment properties, factories, and logistics management areas.
Vast options, versatility, and ever-increasing demand – these are the reasons that make acquiring industrial real estate easier than residential real estate.
How to Invest in Industrial Real Estate
You can invest in industrial either directly or through commercial real estate crowdfunding platforms. A good example of this is Fundrise. It’s completely free to use and sign up.
You can start investing in commercial real estate for as little as $500. Fundrise is a great way to earn income and capital appreciation with real estate while also diversifying your geographic exposure.
Advantages and Reasons Why You Should Invest in Industrial Real Estate
Now that we’ve established the concept of industrial real estate against residential real estate, here are the reasons why you should definitely go for this option.
Higher Diversity, Higher Stability
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.
On the other hand, residential real estate keeps you restrained to limited choices.
It’s simple, industrial properties are used for a plethora of activities like manufacturing, logistics, storage, and production. This means, even if one asset class isn’t performing well due to inflation or other economic reasons, another part of your investment will be working well at all times.
See Related: Top Real Estate Investing Terms
Hassle-Free Passive Income
The reason people consider buying industrial property is that it’s a hassle-free way to earn a steady income as compared to other side hustles. However, if you consider buying a property, you’ll find that residential properties are more trouble than they’re worth.
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 real estate means minimal concerns and hassles for people who’re already taken up with their jobs or businesses.
They require less maintenance and have lower vacancy rates, which ensure a steady, long term income.
You can invest in commercial real estate by opting for Fundrise. It’s completely free to sign up and you can invest for as little as $500.
They offer real estate crowdfunding options for both accredited and non-accredited investors.
Long Term Cash Flow
Think of it this way, you’re a company as large as Amazon or eBay, and you need a place to stack your products and maintain inventory.
How frequently would you want to relocate your warehouse? That’s exactly the reason why industrial, especially warehouse investment properties, ensure long term benefits.
Besides that, residential tenants are more likely to sign short leases. That’s because of frequent changes in family status and needs, leaving you to look for a new tenant for your dormant property.
On the contrary, industrial property tenants tend to sign longer leases to keep their businesses running smoothly. This means long term, undisrupted cash flow for you.
Low Maintenance Costs
The bane of being a real estate property holder is to cover maintenance costs for your properties. In the residential real estate business, these costs are usually more frequent and at times, over the top.
That’s because you’re dealing with families. Here, the slightest mishap, such as wall molds and roof leakage becomes an irritant problem for you.
Sometimes, tenants tend to leave such problems until they build-up, which hikes up the repair costs for you.
Industrial properties are less likely to cause all this nuisance for you. First of all, these maintenance problems are less likely to arise due to less intrusive use of the property.
Also, if they do require maintenance, it’ll be less frequent than residential properties.
Easier to Liquidate
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.
With residential properties, that’s not the case. We’ve seen residential properties left in dire conditions. When an investor feels the need to liquidate the same, he has to go through grueling repairs and improvements to make a good sale.
Even though house prices are high, there are many aspects a property owner has to work on. This includes the interior, weather protection, and technological installations to get a good deal.
With an industrial property, all you have to do is polish it up a bit. After that, just put it up for sale, and you’ll have potential buyers swarming in.
Less Market Saturation Risk
If you’re selling your property or putting it out for rent, you’ll be in trouble if you face market saturation. In other words, no one currently wants the property you’re offering.
This makes your investment stuck with no benefits or cash flow.
There’s a less likely chance of oversupply and market saturation when it comes to industrial investments. There are many factors affecting buyers’ and tenants’ behavior in the real estate market. This includes inflation, interest rates, and consumer lifestyle changes.
What’s common between all these factors is that they usually occur in the residential real estate sector.
You’re unlikely to hear that there’s a vacant industrial property that nobody wants. 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.
Simple and Straightforward
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.
This means with industrial real estate, it’s easy for a newbie to learn the ropes and earn easy cash.
Stronger Tenant Responsibility
If you’ve ever had some bad luck with your residential real estate tenants, you probably know what we mean here. 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.
That’s because any mishap or accident that harms the building’s aesthetics directly linked to the company’s brand identity and production capacity.
Also, industrial buildings are usually four vertical walls covered by a roof and accompanied by an office.
Therefore, there’s less chance of any noticeable problems occurring in the building structure that can cause direct harm to the tenants.
Affordable Vacancy Costs
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 have to cover all the remaining insurance taxes, heating bills, and property taxes.
What’s more! If your residential tenants haven’t left your property in good shape, revamping the house to attract new ones will cost you a lot, adding to the original vacancy costs.
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.
The proper study of the demand and supply curves, as well as consumer behavior, is what makes a real estate investor successful. In the case of investing in industrial real estate properties, the absorption and vacancy rates show a chance of profitable investment in the sector.
Since 2011, industrial real estate properties have been on an absorption surge, with constant vacancy rates in the US.
Similarly, the industrial transaction cap remained highest from all other real estate sectors at 7.9%.
Besides that, the strong leasing activity in the past few years indicates increasing rents and accelerating net absorption for industrial properties in the near future as well.
High Rental Yields
Industrial real estate investments give you the highest yields compared to other real estate sectors. On average, an industrial property gives you about 6 to 7.5% yield, compared to five percent for office properties and five to six percent for retail properties.
What’s more, if you start buying industrial properties today, the increment in eCommerce popularity will hike up the demand for warehouses and distribution places.
This demand will work well with your investment, creating a win-win situation for you.
Technological Advancements and Industrial Real Estate Improvements
Believe it or not, technological advancements are going to change the way we use industrial properties today. Therefore, any improvements you make to your industrial properties are likely to pay off.
Warehouses with multiple floors are rarely found these days.
However, they will be great investments due to automatic operations in the near future.
Similarly, as more businesses will begin to offer fast deliveries, distribution centers close to major cities will be preferred.
Also, warehouses are predicted to double up as large retail centers, data centers, and photo studios, as well.
Meaning, if you refurbish your industrial real estate properties in the next few years, you can grow your monthly cash flow even further by bringing in higher-paying tenants.
Flexibility and Multiple Tenant Facilitation
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.
Online businesses today are aiming to reach their customers in multiple places at once. For that, they’ll need their warehouses and distribution centers in multiple places as well.
Rather than renting one large storage space, companies are gradually turning to small warehouses in multiple cities.
This has lead to consumer demands for shared industrial properties.
So if you can facilitate your property for dual tenants or more, you can create more cash flow and reliable returns on each of your property investments.
See Related: 10 Best Fundrise Alternatives
Yes, that was our list of reasons 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.
The only downside is, most industrial properties are expensive. You need to have a large amount of money to invest.
Nevertheless, it’s a promising investment sector today.
Also, it has the potential to grow and facilitate upcoming changes in consumer behavior and demands.
Although you’ll need a hefty capital to take your first step for investing in industrial real estate, the initial investment will pay you well.
You will see the benefits in terms of low maintenance costs, high yield, and lots of growth potential for the future.