Frequently Asked Questions by Buyers of Industrial Properties
Buying industrial properties can be great investment for Business owners and investors. However, it comes with its own set of challenges and considerations. As a prospective buyer, it's important to have a clear understanding of the industrial real estate market and the complexities it might involve. Here we address some of the frequently asked questions that buyers often have when considering buying industrial properties.
What Type of Real Estate Agent Should I Hire?
Hiring the right real estate agent can be the difference between buying the right building or buying a headache. There is a misconception that any licensed real estate agent is qualified to help buyers find the right industrial building. Many Buyers make the mistake of hiring a family member as their agent, only because that member has a real estate license. In reality, most real estate agents have never done a transaction involving industrial real estate. This lack of experience can lead to frustrated buyers for not finding the right building and/or buying the wrong building. Buyers should always consider hiring a real estate agent specializing on industrial real estate. Additionally, Buyers should confirm the agent has a track record of transaction in this field.
What is Considered an Industrial Property?
Industrial properties encompass a range of real estate types, including warehouses, manufacturing facilities, distribution centers, and research facilities. These properties are typically zoned for industrial use and are designed to accommodate various industrial activities. Site of outdoor storage (IOS) are also considered industrial properties.
What’s the Process for Buying a Warehouse?
Buying Industrial Real estate follows a similar process as other forms of commercial real estate. These include:
1. Search for the property with your real estate agent.
2. Locate the site, negotiate and a contract.
a. Once the building is under contract and the escrow deposit is done.
3. Conduct their due diligence and obtain financing (if applicable). The times for these vary depending on how it was negotiated with the Seller. Typically, 30 to 60 days. There are occasions, mostly for land where contingencies can be months or even a year due to long inspections or zoning contingencies. (Check our video on Due Diligence Steps for Buyers)
4. Closing. Once all contingencies have been met, the money deposited in escrow becomes non-refundable. Buyer and Seller proceed to closing within a short period of time.
What Factors Should I Consider When Choosing an Industrial Property?
Key factors to consider include location, proximity to transportation hubs, access to major highways, local labor force availability, infrastructure quality, zoning regulations, property size, and the property's potential for future expansion or development. It’s important to note that ceiling height and land size are important factors on making an industrial property functional over the long term. Buyers should always check the zoning during due diligence period.
How Can I Compete with Cash Buyers?
Industrial Real Estate is very competitive. The best way for Buyers to stay competitive with cash offers is to be flexible with Sellers. It can be in the form of paying a little more than a cash buyer. Extend, or shorten, closing, depending on the preference of the Seller. Also, consider letting the Seller stay in the property as needed to make a transition easier. Additionally, Buyers might consider releasing some money from escrow to Seller once due diligence is completed.
Can we Look at Off-Market Deals?
Yes! It’s highly encouraged buyers also looking at off-market opportunities with their real estate agent. There is a limited amount of inventory, so Buyers need to look beyond what’s available. Our team always work with our clients to make off-market offers to properties that might fit the criteria.
What are the Benefits of Buying an Industrial property?
For business owners, buying an industrial property can help protect the business against future rent increases. Additionally, the business owner can build wealth by appreciation of the property. Having a real asset, even if the business changes.
For Investors, Industrial properties offer a steady stream of rental income, long-term lease agreements with reputable tenants, potential for property appreciation, and diversification of investment portfolios.
What is the Difference Between Buying and Leasing an Industrial Property?
Buying an industrial property offers ownership control and potential long-term appreciation, while leasing provides flexibility and a lower upfront cost. The decision depends on type of business, financial capacity, and long-term plans.
How do I Assess the Condition of an Industrial Property?
Conduct thorough due diligence, including property inspections, checking for maintenance and repairs, assessing the age and condition of the building, and understanding the maintenance history. Engaging professional inspectors is highly recommended. Navigating due diligence is another reason Buyers should hire the right real estate agent. Most real estate agent are not familiar with the due diligence process for industrial properties.
Is Location Important When buying Industrial Properties?
Location, Location, Location, It also crucial on industrial properties. Properties close to major transportation routes, ports, railroads, and urban centers tend to have higher demand and potential for better rental income and property value appreciation. Also, properties located on cities and states that have growing populations.
What are Triple-Net (NNN) Leases?
Triple-net leases are commonly used in industrial real estate. In these leases, the tenant is responsible for paying not only the rent but also the property's operating expenses, including property taxes, insurance, and maintenance. Landlord, for example will quote $7/SF NNN + $3/SF operating expenses. The first is the base rent to landlord. The second are the expenses the tenant pays to operate the building, including but not limited to: Property Taxes, Property Insurance and Exterior maintenance.
How do I Finance the Purchase of an Industrial Property?
Financing options include conventional mortgages, commercial real estate loans, private financing, and partnerships. For Business Owners, there are also loans through Small Business Administration (SBA) that can help businesses buy the building for the business to occupy. Work with your lender financial experts who specialize in real estate to explore the best financing strategy for your situation.
How can I Navigate Zoning Regulations and Permits?
Zoning regulations and permits can be complex. During the due diligence process, buyers should consult with zoning attorney, general contractor and other professionals. These can help Buyers understand and comply with the necessary requirements from local authorities.
Buying industrial properties presents unique opportunities and challenges that require careful consideration. By understanding these frequently asked questions and seeking advice from industry experts, Buyers can make informed decisions and maximize the potential of your industrial property investment. Remember, each investment is unique, so Buyers should tailor their approach to their goals and risk tolerance.