Investing in real estate can be one of the wisest decisions you’ll ever make. My journey in real estate has taken me through several different asset classes, and I’ll be the first to say that not all are created equal.
Most often, newcomers to the real estate investment game will pour their money into residential buildings, which I cannot stress enough should be avoided. In fact, an often overlooked area of real estate is industrial property. Industrial real estate comprises warehouses (my speciality), manufacturing facilities, and distribution centers, among others. In today’s post, we’ll discuss the benefits of investing in industrial real estate.
Lower tenant turnover
One of the primary advantages of investing in industrial real estate is the lower tenant turnover rate. Industrial tenants tend to sign longer leases than other types of tenants, such as retail or residential tenants. This translates to more consistent cash flow, fewer vacancies, and reduced turnover costs.
Additionally, industrial tenants typically require specialized facilities that can be costly to construct, making it less likely that they will move to a new location. This reduces the likelihood of the investor incurring costs to renovate or customize the property for a new tenant.
A lower tenant turnover rate makes industrial real estate investment more predictable and stable, making it an excellent option for those seeking long-term returns.
Higher rental yields
Another benefit of investing in industrial real estate is higher rental yields. Industrial properties typically have lower operating costs than other types of real estate, such as retail or office space. Utility costs are lower in industrial properties because they do not require as much heating, cooling, or lighting.
Industrial tenants tend to be more reliable and stable, which reduces the risk of missed rent payments. However, even in the case of delinquent payments and subsequent evictions, finding new tenants has not proven to be a challenge with the increasing demand for these types of properties.
Higher rental yields mean that investors can generate more income from their industrial real estate investments. This makes industrial real estate an attractive option for those who want to maximize their returns.
Diverse tenant pool
Investing in the industrial real estate space can also provide a diverse tenant pool. Industrial properties can be used by a variety of tenants, including manufacturers, distributors, and retailers.
With respect to office warehouses specifically, the flexible nature of the workspace allows companies of all kinds to conduct their business under nearly identical properties. Businesses like HVAC repair, landscaping, swimming pool supply stores, auto shops, coffee shops, and gyms can all thrive in flex spaces — and this is just to name a few. This diversity helps to reduce risk and increase stability for investors.
Investing in industrial real estate can also offer significant tax advantages. For example, property owners can deduct the cost of repairs, maintenance, and other expenses related to the property. They can also use depreciation to reduce their taxable income. Moreover, if they sell the property after owning it for more than a year, they can take advantage of the long-term capital gains tax rate, which is lower than the short-term capital gains tax rate.
In conclusion, lower tenant turnover, higher rental yields, diverse tenant pool, and tax benefits are just a few of the advantages of investing in industrial properties. Bear in mind, as is the case with any investment, it is important to conduct thorough research and due diligence before making a decision.
However, for those looking for a stable and profitable investment opportunity, industrial real estate is worth considering. By investing in industrial real estate, investors can benefit from the steady cash flow, higher rental yields, diverse tenant pool, and tax advantages that this market provides.
If you’ve read all of these advantages and are ready to begin your journey into industrial real estate investments, join me over at Flex Space Untapped. I’ve prepared an in-depth and thorough course on how to procure, develop and scale office warehouses to create passive income that will last a lifetime. Let’s get started.
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