Why Real Estate is the Foundation of Wealth Creation
March 13, 2024
Discover the transformative power of a wealth mindset in real estate investment.
Read More >>>
Webinar: Unlock Premium Real Estate Investment Opportunities
BOOK A SPOT.png)
-2.png){kind=logo}
Success comes with the right knowledge. It’s the foundation for making sound decisions that drive long-term gains, especially when investing. Industrial real estate, including warehouses and manufacturing facilities, is separate from the residential or office property market. These properties are often larger, more complex, and operate under an entirely different rules. Therefore, there are many things to know about them.
Knowing its key aspects is essential for making informed choices that maximize your investment potential. So, what are the key things you need to know before investing in industrial real estate?
Industrial real estate investing involves buying, managing, and eventually selling industrial properties to generate returns. In practice, this often means developing and maintaining spaces that meet the specific needs of tenants. The types of tenants and uses for industrial properties have changed significantly with the rise of e-commerce and global trade. As a result, industrial real estate is drawing interest from institutional and individual investors seeking passive income opportunities.
Investing in real estate can take many forms, from residential properties to industrial real estate. While residential investing might be more familiar, industrial real estate opens doors to partnerships with businesses looking for stable, long-term locations. These arrangements can offer a steady income without the hassle of dealing with short-term leases and constant upkeep common in residential properties. But industrial real estate investing isn’t for everyone. Here are six essential things you need to know before investing.
When investing in industrial properties, understanding the lease type is crucial, especially if there are already tenants. Most industrial leases are some form of a net lease, which can vary in what costs the tenant covers, from rent to additional expenses like taxes, insurance, and operating costs. The “triple net lease (NNN),” where tenants cover almost all property expenses, such as maintenance, insurance, and property taxes, is ideal for property owners. However, each lease type has unique terms, so evaluating each lease on its merits is essential.
Owning a single warehouse or factory leased to one large tenant might sound ideal, but it can also be risky. If that big tenant leaves, you have a vacant building and no income. Instead, consider properties that can accommodate multiple smaller tenants. This approach reduces the risk of losing all rental income if a tenant doesn’t renew their lease and makes it easier to find new tenants to fill vacancies.
The real estate market may have been high lately, but that doesn’t mean rents will continue to climb forever. When planning for the long term, it’s wise to be conservative. Consider including a minimal rent escalation clause in your lease agreements to ensure incremental growth but also focus on maintaining a low debt load. This way, even if rents dip temporarily, you’ll be positioned better to weather the downturn without scrambling to make payments.
Unlike residential properties, industrial buildings often have specialized needs, like reinforced floors, high ceilings, or dock access. Knowing these needs and staying on top of necessary maintenance is important for keeping your property desirable to tenants. Industrial tenants usually stay long, so a solid maintenance plan can help you satisfy them and avoid costly repairs.
If managing an industrial property on your own feels daunting, having the right partner can be invaluable. Partnering with a seasoned real estate expert allows you to invest confidently without the day-to-day demands of tenant management, property upkeep, and complex lease negotiations. An experienced partner provides access to high-quality investment opportunities and deep industry knowledge, helping you navigate the complexities of industrial real estate. With a trusted partner, you can focus on building your wealth while they handle the details, ensuring your investment grows steadily and securely.
Industrial real estate relates closely to economic trends, particularly e-commerce growth, international trade, and tech advancements. Staying informed about these trends will help you decide where to invest and whether to hold or sell properties. When you know the factors influencing industrial real estate, you’re in a better position to maximize your investment potential.
Investing in industrial real estate offers unique advantages, but there are key factors that investors should understand to make informed decisions. Here’s a breakdown of the main considerations.
Two of the most important financial metrics in real estate are NOI and the capitalization rate, or “cap rate.” These metrics directly impact the value and profitability of industrial properties. Unlike other property types, industrial buildings don’t have common areas that require regular maintenance, which keeps operating costs down. Many industrial leases are structured as NNN, meaning the tenant covers building maintenance, insurance, and property taxes. This setup can lead to higher NOI by reducing out-of-pocket expenses for the property owner.
While per-square-foot rent for industrial spaces might be lower than other real estate types, the large scale of these properties — ranging from 50,000 to over 500,000 square feet — can still generate substantial rental income. The size of these properties can turn even modest rental rates into significant revenue, making industrial real estate a strong option for top-line growth.
Industrial real estate typically features longer lease terms, ranging from three to 15 years. This stability appeals to investors seeking long-term income as it minimizes turnover and the associated costs. With many leases, including annual rent escalations, industrial properties offer a built-in hedge against inflation. Unlike multifamily real estate, where tenant turnover can be high, industrial leases provide dependable income and are ideal for investors focused on long-term stability.
One of the advantages of industrial real estate development is the relatively quick construction timeline. Depending on size and location, industrial buildings can often be completed within eight to 12 months. This faster development cycle appeals to investors and lenders, allowing for quicker returns on investment than other commercial properties that take much longer to develop.
Federal and state governments often offer various incentive programs to attract industrial tenants and developers. Local governments may provide expedited permitting, tax abatements, and credits, creating a business-friendly environment for industrial development. One prominent program is the Foreign-Trade Zone (FTZ) initiative. Properties within FTZs can store imported goods without paying customs duties upfront, reducing the tax burden and administrative work related to customs. Warehouses in these zones can benefit from duty deferral or exemption and may even receive property tax reductions, making FTZ locations highly appealing for businesses involved in international trade.
Industrial real estate is emerging as a top choice for investors looking to diversify their portfolios and secure reliable returns. This sector offers unique advantages that set it apart from other commercial real estate asset classes, making it a compelling option for seasoned and new investors. Here’s why industrial real estate deserves your consideration.
Thanks to the long-term leases typically associated with these properties, industrial properties offer investors a strong source of steady income. Unlike other real estate types where tenant turnover can be high, industrial leases often span several years, locking in stable cash flows. A 2020 CBRE report found that industrial properties in major markets had an impressive 95% occupancy rate, reflecting this sector's demand and reliability of income. For investors, this high occupancy rate translates to fewer vacancies and more consistent returns, making industrial real estate a powerful asset for stable, predictable cash flow.
One of the standout features of industrial real estate is its resilience in challenging economic climates. This stability is rooted in the essential nature of the businesses that industrial properties serve, such as logistics, warehousing, and manufacturing — industries that continue to operate even during downturns. This resilience provides peace of mind for investors, knowing that their assets are less susceptible to economic swings.
The growth potential for industrial real estate is enormous, especially with the rapid expansion of e-commerce. As online shopping grows, so does the demand for distribution centers and warehouses close to urban areas to support fast delivery. A JLL report projects that e-commerce will require an additional 1 billion square feet of industrial space by 2025. Properties located near major cities or transportation hubs are positioned for appreciation as they become essential assets in the supply chain. This high demand creates opportunities for investors to benefit from increased property values and rental income, making industrial real estate a promising growth avenue.
Choosing the right partner for your industrial real estate investment is essential for maximizing returns and minimizing risks. With billions of assets acquired over 30-plus years and a 28% historical internal rate of return (IRR) across asset classes, I bring extensive expertise in structuring strategic deals and securing long-term leases that provide stable, predictable cash flows.
My hands-on approach prioritizes your financial goals, focusing on growth and resilience in sectors that withstand market shifts. When you invest with me, you’re gaining more than access to industrial real estate — you’re partnering with a committed strategist who understands this asset class inside and out and is dedicated to helping you build lasting wealth. Discover more about my approach at BenReinberg.com.
