Have you considered warehouse investment a golden ticket to diversifying your portfolio? 

If you haven’t, you should.

AND HERE’S WHY:

Industrial spaces and warehouse facilities may not be as glamorous as high-rise office buildings but this commercial asset class is a legitimate opportunity with fantastic returns.

Commercial real estate conversations have historically focused on office spaces and retail:

But then came COVID, and the industry was turned on its head!

To this day, many downtown areas, cafes, and offices remain empty! 

Because of this, buying a warehouse has become a hot trend among savvy investors, and for good reason! 

Imagine having:

1.  A steady stream of rental income.
2.  Long-term leases.
3.  And the satisfaction of knowing you're capitalizing on the booming e-commerce sector.

But wait, there's more! 

The benefits don't stop there – warehouses are typically low maintenance and offer the potential for significant capital appreciation. 

Low maintenance is a significant distinction from warehouse investing to buying residential real estate, certainly in Denver, CO, where tenants can cause damage and expect the landlord to repair it - for free! 

I am speaking from experience as a cash home buyer in Denver, CO, and all over Colorado for the past 20 years. 

So, why not jump on the bandwagon and explore the lucrative world of warehouse investment?

Advantages of Investing In Warehouses: Is it a Good Investment?

Yes! Investing in warehouses is a good investment. In fact, I would say investing in warehouses is a great investment. 

Investing in warehouses is smart for those looking to tap into a market brimming with potential. The advantages are clear: 

•  High yields that can significantly boost your investment portfolio.
•  Long-term leases that ensure steady cash flow.
•  A resilience that stands the test of economic downturns.

But that's not all – the growing demand for storage and distribution centers, fueled by the e-commerce boom, adds an extra layer of appeal to warehouse investment. 

Some of the household names filling warehouses with goods for consumers to buy include:

1.  Amazon
2.  Shopify
3.  Carvana

And these are just the tip of the iceberg.
Data Centers, tech companies, and crypto miners are also gobbling up any available square footage.

In short, if a business requires space to store stuff, then they will need some form of industrial warehouse space.

And guess what?

Almost every business needs this. The potential for customers is limitless!

Are you convinced that investing in a warehouse might be the right call?

Historical Returns for Warehouse Space

If you need a little more convincing, let’s look at the history of warehouse spaces, and where it is going.

In the past, manufacturing ate up a lot of warehouse space. In fact, manufacturing was the primary user, but since 2013, e-commerce deliveries have increased exponentially. From 2013 to 2018, deliveries tripled, which means the required space to store these items went up massively, too!

Going forward, many analysts expect the demand to grow by 15 percent every year!

An example of this in my market is Amazon opening fulfillment centers nearer to the customers of Colorado. Recently, Amazon had 15 fulfillment centers all over the Centennial State. Most of these are in and around the greater metro area of Denver, Boulder, Colorado Springs, and closer to Fort Collins. 

And they aren’t done!

Another e-commerce giant that is flexing its muscles is Temu. It will be interesting to see if they choose to take up warehouse space stateside. If they do, demand will again skyrocket!

Does Warehouse Demand Affect Residential Real Estate?

In short, yes. The increased demand for warehouse space can be correlated to an increased demand in residential. I have been buying houses for cash in Denver since 2008 and have seen a significant correlation between increased warehouse demand and house prices. 

For example:

There has been a lot of warehouses built and occupied on the east side of Denver. This has led to jobs and therefore demand for homes in areas like Montbello (a neighborhood to the east of Denver very close to the airport), Aurora, and Green Valley Ranch. In fact, further east in Bennet and Limon, I have seen house prices go up too. 

Considerations When Investing In Warehouses and Commercial Storage Space

When diving into warehouse investment, beginners should keep an eye out for these key factors:

•  Location, Location, Location: Seek out warehouses in areas with strong population growth and industrial activity. This ensures a steady demand for storage and distribution.
•  Warehouse Classes: Understand the different classes of warehouses (Class A, B, and C). Class A warehouses are newer with modern features, while Class B and C may require some investment for upgrades but can offer higher yields.
•  Age and Condition: Consider the age and condition of the warehouse. Newer facilities may require less maintenance, but older warehouses in prime locations can be hidden gems with the potential for value-add through renovations.
•  Access and Connectivity: Look for warehouses with good transportation links, including proximity to major highways, ports, and airports. This is crucial for logistics and distribution efficiency.
•  Market Trends: Stay informed about market trends, including the rise of e-commerce and the increasing demand for last-mile delivery centers. This can influence the type of warehouse that's most in demand.
•  Tenant Mix: Evaluate the current tenants and their lease terms. Long-term leases with reputable tenants can provide stable income.
•  Zoning and Regulations: Check the zoning regulations and any restrictions that might impact the warehouse's use or potential expansion.
•  Resale: Not only are warehouses a great investment for long-term passive income but believe it or not if you buy using all the criteria above when you are ready to cash out, there are quick and easy ways to sell a warehouse, too!

Investing in warehouses can be rewarding, but it's essential to do your homework and consider these factors carefully. 

With the right approach, you can tap into the lucrative world of warehouse investment!

Types of Warehouses and Warehousing Needs

There are so many types of warehousing needs, from private jets to flex space to housing e-commerce giants like Amazon. 

Here’s a list and brief description of the variety available for you to consider as an investment. 

Which sounds good to you?

Comprehensive list of the different types of warehouses:

•  E-commerce Fulfillment Warehouses (Distribution Centers): Specialized in handling and shipping online orders efficiently. I see a ton of these on the east side of Denver!
•  Manufacturing Warehouses: Store raw materials, in-process goods, and finished products for manufacturing operations.
•  Storage Warehouses: Primarily used for long-term storage of goods and inventory.
•  Distribution Centers (Extra-large Warehouses): Serve as central hubs for receiving, storing, and distributing products to various destinations.
•  Flex-space Warehouses (Office Space and Warehouse in One): Combine office space with warehouse storage, offering flexibility for businesses.
•  Technology Warehouses: Designed to store and manage tech products, often with advanced security and climate control. Colorado Springs is fast becoming a technology hub, particularly semi-conductors, with the US Govt giving CHIPS ACT grants to some businesses that look to gobble up a ton of warehouse space.
•  Public Warehouses: Operated by third parties, offering storage and handling services to multiple clients on a short or long-term basis.
•  Private Warehouses (Type C Warehouses): Owned and operated by companies for their own storage needs, often located near manufacturing plants or distribution centers.
•  Institutional Warehouses (Banks, Hospitals, Railways, etc.): Specialized warehouses owned by institutions for storing specific items like medical supplies, archival materials, or transportation equipment.
•  Automated Warehouses: Utilize automation technology for handling and storing goods, reducing manual labor and increasing efficiency.
•  Self-storage Warehouses: Offer individual storage units for personal or business use, typically on a short-term rental basis.
•  Climate-controlled Warehouses: Maintain specific temperature and humidity levels to store sensitive items like pharmaceuticals, perishable foods, or electronics.
•  Foodservice Warehouses: Specialize in storing and distributing food products to restaurants, cafes, and other foodservice establishments.
•  Raw Materials Warehouses: Store raw materials used in manufacturing or production processes.
•  Pick, Pack, and Ship Warehouses: Focus on processing orders by picking items from inventory, packing them for shipment, and shipping them to customers.

Each type of warehouse serves a unique purpose and caters to specific storage and distribution needs.

Types of Leases for Warehouses

When it comes to leasing warehouses, there are several types of leases to consider:

1.  Gross Lease: The tenant pays a fixed rent, and the landlord covers all property expenses.
2.  Net Lease: The tenant pays a base rent plus some of the property expenses (taxes, insurance, and maintenance).
3.  Triple Net Lease (NNN): The tenant is responsible for all property expenses, including taxes, insurance, and maintenance, in addition to the base rent.
4.  Modified Gross Lease: A hybrid between gross and net leases, where the tenant and landlord share the property expenses.

Each type of lease has its advantages and implications for both landlords and tenants. 

A gross lease offers simplicity and predictability for tenants, as they don't have to worry about fluctuating property expenses. 

On the other hand, net leases and triple net leases provide landlords with a more stable income by passing some or all of the property expenses onto the tenant. 

Modified gross leases offer a middle ground, allowing for a more balanced distribution of expenses between the two parties. 

When choosing a lease type for a warehouse, it's essential to consider the landlord's and tenant's specific needs and responsibilities because, clearly, it is a massive part of your investment strategy. 

What’s the Next Step To Buy A Warehouse As a Rental?

For a new investor looking to take their first step in buying or investing in warehouses, here are a couple of unique ideas:

Partner with an Experienced Investor: Consider partnering with someone who has experience in warehouse investments. This can provide valuable insights, reduce risks, and offer a learning opportunity. Look for a mentor or join an investment group specializing in warehouses to gain knowledge and network with seasoned investors.

Start with a Small, Flexible Warehouse: Instead of going for a large, traditional warehouse, consider starting with a smaller, flex-space warehouse that combines office space and storage. This can provide versatility, allowing you to cater to a wider range of tenants, from startups to small businesses needing both office and storage space.

By exploring these unique approaches, new investors can gain a foothold in the warehouse investment market while mitigating risks and learning the ropes of this lucrative real estate sector.

Conclusion

In conclusion, investing in warehouses presents a unique opportunity for those looking to diversify their real estate portfolio. From understanding the different types of warehouses to navigating the various lease options, it's clear that this venture requires careful consideration of numerous factors. Location, market trends, and the physical condition of the property are just a few of the elements that can impact the success of a warehouse investment. By staying informed and conducting thorough due diligence, investors can tap into the potential of warehouses to provide stable income, hedge against inflation, and capitalize on the growth of e-commerce. Whether you're a seasoned investor or a newcomer to the scene, the world of warehouse investment offers exciting possibilities for those willing to explore its intricacies.