Industrial Income Property Financing: Part 3 of 3

Jul 19
21:42

2005

Cameron Brown

Cameron Brown

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Welcome to the third and final segment of a three-part series about income property. In this segment we will be discussing financing options for industrial income properties as well as the upside (and downside) of owning this type of property.

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Financial Concerns

Of the three types of income property,Industrial Income Property Financing: Part 3 of 3 Articles industrial property requires the greatest degree of technical expertise and experience. Likewise, financing the acquisition of an industrial income property can be, at best, very risky without adequate planning and know-how.

The first thing to consider is what kind of industrial application the building will be used for. Not all lenders will fund the purchase of all types of industrial income property types. For example, funding the purchase of industrial real estate to be used for petroleum refining is a risky investment for many lenders. Make sure your lender is able to support your income property goals.

LTV rates for most industrial income property loans run at a maximum of 75%, so plan on having a nice pile of investment capital on hand. Industrial loan interest rates can also be a little higher than for other income property types-usually between 5.6% and 7.5%. The 20-year term that comes with most industrial income property loans is fairly typical.

Managerial Concerns

Because of the nature of manufacturing facilities, liability becomes much more important than in residential or commercial income properties. Securing the proper type and amount of insurance can help mitigate much of the risk you will take on after you lease your industrial facility.

While industrial income property comes with certain risks and challenges, it lacks to a large extent, the oft-times inconvenient nature of residential income property management. Don't expect any late night calls concerning overflowing toilets or broken stoves. Much of the time, the company leasing your property is obligated under contract to handle typical repairs and maintenance to the facility or equipment.

Unlike commercial and (especially) residential tenants, industrial tenants usually intend to lease your facility indefinitely, or until they either liquidate or their operations outgrow your building. This is good news because you are virtually guaranteed cash inflow for the duration of your income property investment.

Conclusion

In the final analysis, investing in industrial income property requires a lot more time, money, and prior experience than it's commercial or residential counterparts. For investors with the right skills and financial backing, however, the payout can be much more rewarding than any other income property investment.