How Industrial Investors Can Avoid Analysis Paralysis
Updated: Oct 28, 2020
Every industrial investor will feel the very real symptoms of analysis paralysis at some point during their career. It’s common for a lot of real estate investors to be so caught up in numbers and risks and deals that it costs them the investment altogether. Seasoned industrial investors aren’t immune to occasional hesitation, either.
So how do you know when you’ve done enough research to pull the trigger? How do you know when to say yes, when to say no, and when to say “not now”?
Having a deeper understanding of why analysis paralysis happens and how to work through it can help every industrial real estate investor weigh risks and rewards. Here are a few of the biggest factors that investors should consider (but not obsess over) to avoid analysis paralysis.
One of the biggest issues that hang up new investors is the price of industrial real estate. Paying too much for the property is a common mistake that we’ve all made. Jumping into an investment without comparing it to other properties in the area can put investors in a rough start before they even get started. Making risky decisions like overpaying for a property is almost the opposite of analysis paralysis. While waiting around too long for the perfect deal can cost you, so can jumping in too soon.
If your investment strategy is to buy and hold, it’s important to focus on the “hold.” Buying an industrial building and selling it within a year makes it hard to turn a significant profit. Before you invest, consider if you’re in this for the long-term. Are you going to have the time/energy/desire/ability to manage this property as a long-term commitment to see an increased ROI?
Part of an in-depth analysis of the cost of an investment is understanding how taxes factor into your final cost. Before you make any decisions, find out what the tax regulations are in the area. Cities with high property taxes can make it difficult to make a profit on investment properties. If you are serious about investing in an area that typically has higher taxes, it’s important to factor that into your budget so you can make a profit and give Uncle Sam his cut.
Hiring a professional property management company can save industrial investors valuable time and effort by making sure the day-to-day task associated with the property are taken care of. If you are like many beginning investors, you are dabbling in the real estate investment world while still working full time and managing life and family responsibilities. A property manager can help you manage the rent, maintenance issues (depending on the structure of your lease), taxes and other issues so you can focus on living life and enjoy the passive income your property generates.
Many investors fall in love with turnkey real estate for just this reason. Turnkey real estate allows investors to show up, purchase a property and wait for the rent checks to come rolling in. The property acquisition, tenant screening, and other time-consuming tasks are taken care of. If your analysis paralysis comes from not knowing if you have the time or knowledge to manage a property that’ll generate the highest ROI, hire a property a management company and check that worry off your list.
Another important thing to consider when deciding on an investment property is how much work it needs. Finding a great deal is one thing, but not if it means spending your entire budget making it a leasable space.
And the initial upgrades and repairs aren’t the only thing you should think about. Set aside at least 5% of your rental income for the inevitable repairs that the property will need – this is especially true if you have not signed a NNN lease for the space. With NNN leases, the repairs will often fall to the tenant occupying the space. Absent a NNN lease, you’re more likely to be on the hook for costly repairs. So take time to analyze the property’s condition prior to purchase. Vacancy Rate
No tenant means no rent checks in your mailbox. Vacancy rates can be stressful and costly, so it’s essential to have a plan for when it happens. Every industrial investor will find himself or herself in a situation where the property is empty unexpectedly, and being prepared for this financially is the best way to stay afloat. If you are a new investor and are concerned about vacancy rates, stick with properties that already have long-term leases in place. Property Class
Some investors get so caught up in finding the perfect industrial property that they overlook properties that have the potential to be perfect. If you’re only looking at A and B class properties, you may be missing out on excellent C class properties that just need a little TLC. Seasoned industrial investors know that with smart, thoughtful improvements, a property can be upgraded to attracted solid, long-term industrial users. Local Laws
Different cities have different laws when it comes to how a property can be utilized. Be sure you fully understand what can/cannot be done at a property prior to investing. For example, a town may restrict the hours that trucks are allowed to load/unload in order to prevent neighborhood disturbances. This could limit who you lease the property to in the future. It’s important to go into these situations with eyes-wide-open.
The idea when it comes to smart investing and in-depth analysis is to take as long as you have to but no longer than you need to. In real estate, time is money, and the longer you wait for the stars to align and everything to be perfect, the higher the risk is losing out on the deal altogether.
As you build your industrial portfolio, you will perfect this fine line of analysis and paralysis through trial and error. You’ll jump on deals too soon, and you’ll miss deals because you waited too long. It’s all part of the process. However, knowing the main factors that trip investors up and being proactive in those areas can save you time, money and heartbreak in the long run.
We hope you find this information helpful. Our team is experts on Lease and Sales of Warehouse space and will be happy to help you. You can contact one of our team members with any questions or schedule an appointment.