Gary Tharp

Learning Industrial Property Investments

Are you considering getting started in industrial property investments?  Check out this article to learn more on investing in this commercial property arena.

If you are conservative or a beginner investor, you would want to purchase a pre-constructed building to get started in industrial property investments. You don’t have to build new to get started.

However, be prepared to ask yourself some hard questions, such as, “Is it a marketable location, or is there a market for this type of building?”

For example, say you have two buildings the same size, 10,000 square feet: one priced at $450,000 and one at $600,000. If the rent is slightly less in the $450,000 building than the rent in the $600,000 building, you may consider the $450,000 building a better deal because rent can always increase over time.

If the buildings are the same age and size, usually the difference in price becomes a function of location. These types of buildings are usually located in small industrial or commercial parks, where zoning is appropriate. Other differences may also impact the price. For example, if one building is ten miles out of town and the other is 1.5 miles, the closer one is a better property, but it will probably cost you more money.

The practical point of view must also be considered, though. The building that’s 1.5 miles away is much easier to keep tenants because more people want to be there, rather than at the 10-mile location. Although you can buy the building 10 miles out at a cheaper price, you have no real benefit.

When you are offered a good deal, like a little shopping center just down the street— but cheap, real cheap— be very careful. Even if they just want $80 a square foot for it, start looking for reasons why it’s so inexpensive. For example, check the occupancy rate. Perhaps it’s vacant right now, which is why it’s such a “good” deal. If it’s been vacant for some time, of course, it’s going to be cheap.

However, before you worry about cheap, worry about why there are so many vacancies, because that’s far more important than the low price. If you buy a low-priced little strip center at $80 a square foot, which is considered inexpensive in most areas, and it’s 10,000 square feet, you bought it for $800,000. Agreed, that’s cheap! But if it can’t get any tenants, how good is “cheap?”

When considering industrial property investments, you must also determine the marketability of a particular neighborhood. To do so, drive every street in that neighborhood, to get a better idea of the area.

Typically, when looking for industrial property investments, we are NOT looking to buy from properties that are listed for sale (such as those on Loopnet.com and other similar commercial property listing sites) but from among the vast majority of properties that are NOT actively being marketed for sale.  Check for tips on this technique in a forthcoming article.

Article Tags: Industrial Property Investments, Industrial Property, Property Investments, Real Estate

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