What To Know Before Investing In Industrial Real Estate
Real estate remains one of – if not the number one – investment opportunities out there. It sits above other common investments because it’s one of the only things that you have control over the profits.
As a real estate owner, you can control your returns by renting the property out to tenants. Consequently, you guarantee a set amount of money every month during the tenancy. You can also make changes to your property to make it more valuable – something you can’t do with other investments. Thus, when you sell it, you can almost guarantee a profit.
There are many types of real estate investments you can consider. Most people automatically opt for residential real estate, but industrial real estate is also a fantastic option. It presents some advantages over the residential side of things, and here’s what you need to know before investing:
What is industrial real estate?
Depending on who you ask, industrial real estate either exists as its own category or as a sub-shoot of commercial real estate. Either way, it refers to any properties used in an industrial sense. This includes things like:
- Warehouses
- Manufacturing facilities
- Shipping facilities
- Engineering plants
- Power plants
These buildings are often extremely big as they need to contain lots of equipment and machinery.
Why invest in industrial real estate?
Put simply, there’s an incredibly high demand for this type of property. Many of the businesses that require industrial buildings are extremely common. Manufacturers exist all the time and require very specific properties to do their work. Arguably one of the most common businesses to demand industrial real estate is a shipping/distribution company. Organizations like these need large open spaces to store goods while having enough room to drive machinery around or use heavy equipment.
So, if the demand is high, this opens up so many opportunities for an investor. You can rent out your property, charge a large price, and get loads of money coming in every month. Renting industrial real estate is always more costly than renting residential real estate. Why? Because large companies need industrial buildings, so they have more money to play around with. From your perspective, this is perfect!
Additionally, it is often more affordable to invest in something like a warehouse, especially when compared to buying a house or an office building. You can also argue that your property will remain in much better condition. Again, this is because you’re renting it to businesses. Businesses need to abide by certain health and safety regulations to provide good workspaces for employees. So, it stands to reason that your industrial property investment will be kept as neat and tidy as possible. Plus, companies have reputations – so, they won’t want someone visiting their premises and being appalled at how dirty it looks. Having tenants that actually look after your investment can be so beneficial as this saves money over the long run.
Are there any downsides to industrial real estate investments?
There is one possible downside, and it’s that more things could go wrong with one of these properties. In a house, you have basic things to worry about; electricity, plumbing, etc. In a warehouse or manufacturing facility, there are lots of extra things that can be concerning. You have process piping that could cause gas or fluid leaks, you’ve got lots of heavy equipment or machinery that might overheat and blow up – the list goes on and on.
While the investment is easier to manage and generates bigger returns, it does come with more risks. The fact that you rent it out to a business means there will be more people in the building at all times. More footfall means more potential for accidents. All it takes is one employee to make a mistake that could cause structural damage or a fire. Sure, your tenants may pay for this, but it still damages your investment.
Should you invest?
This is not financial advice of any sort, and you will never be told what you should or shouldn’t invest in on this site. Instead, we can make recommendations and give you some reasons why things might be worth looking into.
If you are interested in real estate, then industrial real estate certainly offers a fresh perspective and a new investment opportunity. It definitely has its advantages, with the high returns being extremely attractive. But, be aware of the potential drawbacks. Mainly, it is a riskier investment than traditional, residential real estate.
Do more research if this does interest you, and speak to a proper financial advisor before doing anything with your money.