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Commercial Buildings: a Great Real Estate Investing Strategy

Written by Posted On Friday, 27 July 2018 05:54

While we see difficult times for commercial real estate - with Toys R Us closing is just a tiny part in a big (and sad) real estate trend – Industrial Real Estate is putting smiles in everyone’s faces lately. It’s kind of almost logical, right? If we’re having less retail stores around, shifting heavily to virtual commerce, we need more quality storage places, right? More general commercial buildings, more warehouse for rent or sale. In 2017, commercial buildings were responsible for more than $491 billion in real estate sales! Urban Land Institute even declared warehouses as their top investment property recommendation.

The great thing about warehouses is how versatile they are. There seems to be no “wrong” with them, and, in times of great changes – in the economy and the way we consume things – that’s a big factor in order to achieve success. For instance: location. Yes, location, location, location; the old real estate adage. It does put a weight on a commercial building, but you don’t need to be in the center of the commercial real estate market to strike big with a warehouse. You can have a successful investment property even on the outskirts of major cities. You can have a successful warehouse in the suburbs of the city of Weston, FL as much as you can in downtown Miami; it will all be a matter of adapting the industrial unit’s purpose (more on that later). Second: size; also not a problem. Of course; the bigger – actually, the taller – the better, as these modern logistic companies require space for their robots to quickly find and retrieve their packages. However, there’s also use for small-ish commercial buildings.

That’s the thing: in the end is all about space, right?

So, considering that the residential real estate market can go through a lot of ups-and-downs because of a number of factors; why not think about giving warehouses as investment properties a try? For one, it’s very low-maintenance; Tenants will ask you to Vanilla Box it every time, and you won’t have to know by heart the Landlord-Tenant’s rights as disputes happen much less often when there’s no one actually living in the place.

But that’s assuming you just use the warehouse for rent. Maybe you want to earn money but also have something to do? You could profit off this investment property by running a business in the warehouse. Let’s talk about some ideas for both.

 

Storage

The most classical way commercial real estate investors would profit off warehouses for rent was using the commercial building as storage in a business-to-business way – for instance: the Landlord would rent the space for Amazon to store their goods exclusively, or even let Walmart, Amazon, and Apple share the space between them. On one hand, that’s good because you can experience longer more stable contracts, but as more and more retailers struggle and the big companies that emerge from this fight shift to owning their own warehouses instead of renting, depending on your real estate market your revenue may be affected.

But what if your storage warehouse is not business-to-business, but business-to-consumer. You know what we’re talking about? Those storage facilities where regular Joes like you and I can rent small units within the big warehouse to store products, personal objects and whatever else they want/need. It’s a smart way to profit off a commercial building, because it’s super inclusive: there are small-time business owners who rent it to use it as a commercial stock, there are people who use it to store things they can’t fit (or don’t want) in their house, and there are even people who store their belongings there because they are currently not able to live in a house at all, crashing at someone’s place etc. What’s great about it, is that the commercial building doesn’t even need to be perfectly located, as people will need to drive (with a big pickup truck, at least) to transport their items in and out anyways.  So, with a business-to-consumer storage warehouse, you basically have a clientele independently of how the economy is at the moment because population is growing and space is becoming sparse.

However, the downside to this type of investment property is that it requires a lot of maintenance. You have a lot of people coming in and out of your commercial building and God knows how many dollars worth of things inside the storage units, so you need to have the most reliable security system you can 24/7. To deal with the walk-ins, you’ll need personnel on your payroll and if the tenants rotate a lot, you’ll need to clean up a lot – not to mention there are always accidents there, so a strong liability insurance coverage is warranted. In fact, many storages impose a mandatory insurance policy on every unit paid by the Tenant to double up on the possible problems.

It will keep you plenty busy, but overall: great investment property!

 

Office Space

Depending on the size of the commercial building, you can compartmentalize the place and rent to one or two companies to use it as an office space. The new startup culture deeply appreciates open office spaces as a mean to integrate people, so new companies love warehouses. Turning them into office spaces can be especially smart if you bundle up with other moves. Here’s an example: say you have a warehouse and a restaurant nearby, or you intend to turn one property nearby into a commercial real estate establishment geared to retailers. They need consumers (that is, people)  to profit, right? So, having people working - instead of goods stored – in your warehouse is more beneficial to your other property. You profit on both ends.

Now, location is somewhat of a factor here, as you can’t be very far away from the city: you need to be well located so that Tenants think it’s a good idea to rent your warehouse to use it as their office space.  

And, if you want to, there’s also the more hands-on approach too: what if you turn a big warehouse into a co-working space? Can’t go Vanilla Box with this one, as you will need to provide (a really fast and reliable) internet connection, plus some nice comfy chairs, tables and general amenities; but you’ll be able to charge by the table and make some nice investments like owning a share of the startups. By doing that, you can, later on, end up acquiring a crazy good return on investment; one you would never achieve just by renting the place.

 

Sports facility

Considering the US Life Expectancy is dropping and those industrial units are really spacious… how about using it to host a sports facility to help people live healthier lives and earn some sweet commercial real estate money off of it? Warehouses can be used to house a basketball court, an artificial grass soccer pitch, or even a multi-purpose sports facility with fitness equipment, physiotherapy machinery, and other sports apparatus. It’s an excellent idea for those “old” industrial units that don’t have a substantial square footage or very tall ceilings. You can maybe invest in the hardware and have contractors (personal trainers) bringing their own clients to train at this cool private boutique fitness space. Or, you can even go the low-budget route and just set up some of those HIT (High-intensity Interval Training) rigs that are not expensive at all. The CrossFit fever has cooled down, but you still find a lot of people that are willing to spend big money to go to an almost empty warehouse to push an iron sled and jump ropes.

Depending on the size of your commercial building, maybe you could compartmentalize to have all three: storage space, office space and sports facility! So, as you can see, warehouses are great investment properties. Even if you don’t feel like being a Landlord of industrial units, if you just want to get in, wait a while and sell for more, this industrial real estate just keeps getting hotter, so it’s a nice alternative to residential real estate. When thinking about diversifying your portfolio, consider warehouses.

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Theresa Hus

THERESA HUS, CONTENT WRITER AT REALESTATEAGENT.COM

Theresa Hus is a member of the content team at The OFFICIAL Real Estate Agent Directory ® producing countless informative and trendy real estate articles monthly for RealEstateAgent.com and its many outlets.

Real Estate with a twist; that's how one could define Theresa's writing. With 16 years of experience in the industry, Theresa is all about coming up with topics that go beyond the basic real estate agent advice and home buyers/home sellers "how to" articles you see around. Her main goal with her writing is providing not only information that will make readers lives easier when dealing with real estate, but a good time through a fresh, fun and insightful read. While the site is called RealEstateAgent.com, Theresa likes to keep away from generic real estate agent content; her articles are all about thinking outside the box, stepping in the consumer's shoes, and warning readers of things they might've never thought of. Sometimes they're quirky and very specific - like an article questioning if you would live in a haunted house if the price was right - sometimes they just contemplate issues that no one bothers to talk about but are very important to a lot of people, like articles regarding the pros and cons of living near a highway or real estate agents specialized in homes for the disabled.

To do that in a responsible way, Theresa is constantly talking with the many nationwide real estate agents registered on The OFFICIAL Real Estate Agent Directory ®, researching the newest real estate niches, trends, and overall best practices.

Specific areas/topics that Theresa is able and willing to share her expertise and knowledge on include:

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