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Is Warehouse Space a Good Investment?

There are so many ways to make money in real estate, whether you’re just getting started and you want to use strategies like wholesaling or maybe creative financing; or maybe you want to do the fix and flip model. But, in most cases, people seek real estate investing for the purpose of building wealth and cash flow.

So when we take a step back and we look at all the many different ways to make money in real estate, which one is going to best serve you? And if that is moving forward with cash flow, then you’re going to be looking at income producing assets and one of those are warehouse space.

Zack Childress

To be clear, a warehouse is just a building for storing goods. And warehouses are used in many industries and for many reasons.

It could be for importing goods, exporting goods; it could be for manufacturing-type businesses; it could be for transporting and storing goods for businesses.

These spaces are usually large plain buildings in an industrial park, on the outskirts of town in most cases.

Warehouse space is an essential need for our community. It’s an essential need for businesses in general.

If you are looking to lease a building for your business you’ve got to start thinking about what type do you need? Do you need a warehouse space? Do you need a manufacturing space or do you need flex space?

Flex space tends to be one of the most popular types of warehouse opportunities either for businesses seeking to lease or for investors seeking to lease them out.

Flex space leans more toward the demand and the current market right now. Flex spaces are warehouses with a small portion of them built out into office space.

Some things that you do want to think about when you’re looking is: What is your monthly budget? What type of space do you need by square footage? Where’s the location? Is it going to fit the need of your business and transportation?  What type of features are needed? Do you need raw warehouse space or are you going to need fiber optics or telecommunications built in there?

Also think about the lease terms. A lot of times you’re signing three-, five-, sometimes six-year leases. Some of those leases are going to have what’s called a gradual increase in lease payment over time.

What type of inventory is really out there when we’re looking for leased space?

In the industrial or flex type warehouse space in Huntsville, there are less than two dozen buildings available for lease.

This is a sign that you should really look at as an investor because there’s just not a lot of lease space available. There are only three buildings available for lease in the industrial and flex space market in the Madison area; in Birmingham there are 38.

Now, if we take another look and look at what’s for sale in the industrial warehouse and flex space community in the Huntsville area, there are less than a dozen buildings for sale; Madison, are only two for sale and, in Birmingham, there are only 13.

So, what does this mean?

Well, this means that there’s not enough space available and what is available is already being consumed, especially for the for sale side. We need more of it because the demand is obviously there. When you look at Madison only having two and Huntsville with 11 that are available on the market right now, there is a huge opportunity for this.

From the investing side, I’ve always been a fan of warehouse space. I’ve owned warehouse space for many years for a few reasons. One, there’s low maintenance in warehouse space. The tenants typically are long term, but they are used for business and not personal. And the leases are always in our favor because we can do triple net leases that are very hands off from a landlord’s point of view.

You don’t have to deal with the same type of issues that we deal with when we’re renting out apartments or single-family homes. We’re signing agreements with businesses and they tend to stay for long periods of time inside the warehouse.

What is a gross lease, this is where a tenant is going to pay typically higher monthly rent. But it’s also because they’re covering the taxes, insurance, maintenance, utilities, and any other expenses that come with that building.

Now the most common least that you’re going to see out there from a either looking to lease a building or as an investor buying a warehouse space and leasing it out is known as a triple net lease and this is where the tenant is going to pay their pro rata share of everything that consists of insurance, taxes, maintenance, and typically any common area upkeep. They will also pay for their own janitorial services and utilities that are associated with them acquiring the space that they’re in. This is probably one of the reasons it’s the most common lease out there, which is known as the triple net lease.

What is the cost range on average to lease a warehouse space?

Typically, in the flex space area, you’re going to see anywhere from $6 to $9 a square foot for the year. So, if it’s a 2,000 square-foot building that you’re looking to rent out as an investor, then you’re looking at $7 a square foot, which means your tenant will pay roughly $1,166 a month for that space – making your yearly income $ 14,000 for the year.

Now, on the industrial side, you could see anywhere from $7 to $18 a square foot. And typically, when the price gets higher, it’s because the space is newer or there are more features,

There’s been a huge demand for new warehouses. When you look at everything from Amazon and Facebook and Google and the creation of cryptocurrency, they’re all looking for new space, new cooling system, new digital input and output, updated electronics, new communication systems, etc.

The high demand for new warehouses puts us in a little bit of a disfavor for old warehouses which don’t have the features that new warehouses have.

In my experience, I have found that warehouses are among the safest investments.In most cases, it can be easier to develop a new warehouse than it is to buy an older warehouse and bring it up to date.

Now, on the other side, if you can find land cheap, building the new spaces will help tremendously in meeting the need and supplying the demand that’s out there right now. Just think again about Madison having just two buildings for sale in the industrial and flex space arena.

What it really comes down to is building wealth through real estate. Whether you’re choosing warehouse space, industrial space, flex space, strip centers, apartments or single-family homes, it’s all for the sole purpose of building wealth through cash flow and owning income-producing properties.

When people ask what area should they go into, I’m always going to direct them to start where it makes sense for them.

Where do you have the most knowledge? Where are you prepared to move into the market? Is that single-family homes? Small apartments? Warehouses? Industrial flex space? Strip centers?

It’s really where you feel comfortable getting into the market or where you feel comfortable getting educated on the processes of working this business we refer to as real estate investing.

(Zack Childress is the president of the Madison County Real Estate Investors Association and has been an investor for nearly two decades. The Madison County REIA meets monthly. Visit www.JoinOurNextMeeting.com or madisoncountyreia.com.)

3 Things You Must Know Before Buying Real Estate Investments

Have you ever wanted to become a real estate investor?

That’s a question I am sure lots of people are asking themselves right, especially when we look around and see that some of the wealthiest people have large portfolios of real estate investments, whether that is single-family residences or apartments or even commercial space.

Real estate has always been an avenue for creating extra income as well as, really, building a financial future for your family through income-producing properties.

I wouldn’t blame you if you wanted to be in real estate right now because the market is hot. And this makes a lot of people want to jump into real estate and it couldn’t be a better time to get into real estate.

But you also may be saying to yourself that you don’t know a lot about real estate.

And there are a few things you need to know before you even start going out and looking at properties, making offers or even evaluating real estate deals. Those few things boil down to what we refer to as the three things that you must do before buying real estate.

Let’s talk about them.

  1. Know your market. This is crucial to your success when it comes to doing the right deals in the right area. You need to know where the markets are for rental properties; or which areas are going to be best for fix-and-flip type properties. You can do this through gathering data from a real estate agent. By knowing the market it helps you understand when you’re looking at deals how to figure the right strategy for that area. For example, you don’t want to try to fix and flip a property to sell that’s in a heavy rental market.
  2. Build a power team. In real estate, you’re only as successful as your power team. Your power team will have professionals – real estate agents, contractors, handymen, property managers, mortgage brokers, bankers and closing attorneys.
  3. A financial source. This is something that a lot of people don’t do right away, but you want to be prepared, so you want to go out and build relationships with local banks, community banks and credit unions. The local relationship is vital because they’re going to be easier to work with. They’re going to have better programs and they’re going to really want to help you build your real estate business in the local community.

From here, you can start getting the specialized knowledge for what you want to do in real estate investing. But the ultimate key is if you want to become a real estate investor, identify these three things and then move into specialized knowledge.

Now, you may ask, “Where can I find some of this specialized knowledge?”

Right?

Well, you can find it in investment books and videos on YouTube.

You can also get this information from a mentor to help you grow or, if you want to be a part of a like-minded group, you can come out to a local real estate investors association meeting.

Locally, the Madison County Real Estate Investors Association has been helping area investors for more than 15 years. The group holds monthly meetings on different topics and it might be something that you’re interested in. For a schedule visit www.joinournextmeeting.com.

I encourage you to look into that and I’m looking forward to seeing you out at one of those meetings.

(Zack Childress is president of the Madison County Real Estate Investors Association).