Industrial real estate has long played second fiddle to more consistent investments like apartments and traditional retail outlets, but industrial investment is suddenly breaking out in a big way. The past few years have seen a steady 10% growth in the market, and the market was valued at almost half a billion in 2017. It’s a trend that’s likely to stay steady, bolstered by the growth of e-commerce and the need for more warehouses to support their operations. If you’ve ever considered investing in industrial real estate, now’s the time, and here are some tips that can help you make the most of your money.
Determining a Property’s Value
The industrial sector has been in decline for some time, and that means that there’s less in the way of formal standards for evaluating their value. You may have to do some extra work to figure out a property’s worth. Start by measuring the square footage and comparing it to other warehouses in your region. From this baseline, you can adjust the value by using a number of metrics like age, security, and the presence of useful equipment and technology.
Determining the Right Location
While residential and commercial properties have fairly similar standards for desirability, warehouses follow different rules. The one major selling point for a warehouse’s location is how well positioned it is to deliver product efficiently. The ideal location is situated near a major transit hub like an airport or seaport as well as a centralized highway. And while that’s the principle thing to keep in mind, picking a warehouse that’s near a major population center can also be a huge selling point that can increase your property’s values significantly.
The Advantages of New Properties
The obvious choice for new investors might be to put their money into aging warehouses. Older warehouses in urban areas are often outperforming newer developments due to their location, but there are a couple of reasons why they’re unwise choices for a long term investment. The scarcity of these locations makes them highly competitive targets, and many of them aren’t equipped to meet the needs of new e-commerce retailers. Their lack of height means that they aren’t well-suited to the more efficient verticality of modern warehouses, and upgrading them to accommodate the robotics that power the modern warehousing industry is so costly that they can’t really be seen as an economically frugal alternative to newer developments built from the ground up to meet the needs of tenants.
Apartments have been a fairly good investment for the better part of a decade. That is still the case. Other options may have become more tempting over the past few years, but there are fairly fundamental economic trends that ensure apartments remain a good choice for many investors.
The Big Picture
Humans need homes to stay safe, healthy, and comfortable. That is a fundamental fact of life, and no amount of technology or economic development is going to change that. Apartments are an affordable way for many people to get a home, and the relatively flexible nature of renting appeals to people who aren’t quite ready to settle down. That means that there will always be plenty of demand for apartments. The precise level of demand can fluctuate over time, but there will always be some.
Of course, some investments are better than others. Those who take the time and put in the effort to get the most out of their properties will generally see a much bigger return on their investment than those who do not.
Find Ways to Add Value
Increasing the value of a property is a key part of getting a good return on a real estate investment in the modern market. Most investors will want to consider paying to add amenities that appeal to renters in their area so they can command higher prices and attract more residents. Lowering operational and maintenance costs, or even looking for tax incentives can also be very effective ways to get a better return.
Choose Locations Carefully
It is always best to look for areas with a steady demand for housing before investing in apartments. In general, renters are looking for places with easy access to amenities and jobs. As with all investments, the price is also a factor. Examining local trends is a key part of determining the value of an investment.
Do the Research
Apartments are still a fairly good investment, especially for people who understand how to get the most out of them, but the golden rule of investing still applies: Do the research. Every region’s market is unique, looking at all of the options and honestly assessing them is vital for success. Investors who do their research and pick their investments carefully are the most likely to find success with apartments.
Investing in an Airbnb Property
Many people that would’ve otherwise never thought to rent out their home or apartment are looking into buying a piece of property just to get in on the popularity of Airbnb. Thinking of doing the same? Before you invest there are a few considerations you will want to take in account:
1. Research the Local Rules and Ordinances
Before purchasing a property for short-term rental, research the rules and ordinances in the area. Some cities enforce certain rules that limit short-term rentals in favor of long-term rentals. Depending on where one lives, they may find that investing in an Airbnb property breaks the law.
Moreover, some local rules force renters to pay additional taxes and fees on the income generated with their Airbnb. Similarly, these renters may also be forced to obtain certain licenses to be able to rent out their property.
2. Ensure that the Property Can Also Be Used for Long-Term Renting
Buying a property specifically for Airbnb? Be sure that the property is also available for long-term renting. As business is always ebbing and flowing, it isn’t feasible to solely rely on revenue from short-term rentals.
3. Keep Tax Rules in Mind
Renters that set their Airbnb property lower than the market value may find that they are disqualified from using the property as a tax write-off. Before setting the rates or the property, research the IRS tax code and ensure that the property is in accordance with federal guidelines.
4. Review All the Expenses of Your Short Term Rental
While renting a room in one’s apartment on Airbnb requires little additional effort, renting an entire property tack on extra responsibility for the renter. In addition to maintaining the property by repairing and cleaning it, the owner must pay for the water gas, cable, electric, and Internet. All of these should be reflected in the price of the rental.
Don’t invest in an Airbnb if all the aforementioned considerations haven’t been made. Failing to consider these four things can turn a potentially profitable investment into a loss.
There’s a level of risk inherent to any investment, but successful investors can tell you that making money in this manner should never be a game of chance. Research constitutes a significant portion of any investor’s job, and that’s especially applicable when dealing with real estate. Any number of factors could affect the value of your property, but these tips can help you get some sensible grounding in the industry.
Learn the Lay of the Land
The value of a property is about a lot more than the size and quality of the home. The neighborhood and city it occupies is just as important, and getting a feel from the street level can help you not just predict what the property is worth now but what it might be worth in the future. If possible, you’ll want to make sure to visit the house itself so you can get an understanding of the local traffic situation, aesthetics, and access to entertainment and public facilities. Driving around can give you a big picture understanding, but going out on foot is just as important. Speak with local business owners and residents to get an understanding of the attitudes and get to know about upcoming development projects. This can be a good barometer for how well you can expect your property’s value to grow.
Assess the Market
There are a number of online resources that can help you determine if the property you’re looking at is a smart investment or a money trap. Check with a local Realtor or with online rental directories to get an understanding of typical rent in the area, and then evaluate that against your budget and the cost of your investment. Zillow can be a great resource here. You can also dig up the mortgage and lien history on your property directly. This information is public record and can be uncovered online without too much effort.
Scope Out Total Expenses
Figuring out the cost of your investment is about more than just comparing the cost of your mortgage to the average rent. You also have to take utilities, maintenance, and insurance into consideration. This will help you more accurately determine what your overall costs can be. And while some owners may be reticent to give up this information, the promise of a reliable buyer can often encourage them to be transparent with that data.
After putting these tips to use and conducting thorough research, you are ready to make your investment!