There are many mistakes that industrial property investors make when investing in industrial property that will cost them money and expose them to risks. By being aware of these mistakes, you can make better decisions for yourself as a property investor, and reduce the chances of risk. Below are the most common mistakes that investors make when purchasing industrial property.
Ignoring Location and Connectivity
Many investors mistakenly assume that location and accessibility have little effect on industrial properties. The majority of industrial properties rely heavily on logistics, transportation, and accessibility. If investors choose a poorly connected location for their industrial investment, they can experience higher transportation costs, delays in delivery times, and challenges finding tenants or buyers in the future.
An industrial site should be easily accessible to major highways, primary arterial roads, and the metropolitan areas of nearby cities. By being close to regional logistics hubs, railroad stations, and rail corridors, the site can experience significant value appreciation. Investors who only look for the lowest price and overlook connectivity will ultimately experience the most significant negative impact on their business operations and financial returns.
In addition to having good location characteristics, a site that is located near upcoming infrastructure projects (i.e., a new highway) or new industrial zones will likely appreciate the most amount of value over time. Failing to evaluate these locations as potential growth patterns will result in an investor missing out on potential profit opportunities. A good location will not only help in successfully operating a business, but will also increase demand and resale price.
In short, compromising on location to save money today may cost far more in the future.
Skipping Legal Verification
Investors tend to rush through the legal verification process because they want to get the deal done quickly. Unfortunately, many investors fail to do adequate due diligence, and this often leads to ownership disputes, illegal land usage, or financial loss. It is important that you perform proper legal checks to ensure that the property you are purchasing has a clear title and appropriate documentation before you invest in it.
You should also confirm ownership records, land use approvals, and government approvals. For example, if you purchase property that has not been approved for industrial use, this can lead to many issues, including legal complications and restrictions on your operations. In addition, it is also important to determine whether or not the property has any unpaid loans, disputes, or liabilities.
Many investors rely on verbal agreements or incomplete documents; therefore, it is essential that you consult a legal professional with experience in the property field who can assist you with verifying every aspect of the transaction.
The foundation of a secure investment is the performance of the appropriate legal checks; neglecting this step may reduce your costs in the short run; however, you will incur significant expenses later.
Overlooking Infrastructure and Utilities
One of the typical pitfalls is not accounting for the availability of the proper utilities and infrastructure. To operate successfully in an industrial environment, you will need a robust supporting infrastructure, which includes roadways, electricity, water supply, and drainage. The lack of any component listed above makes it challenging for companies to operate efficiently.
Investors have made a purchase decision based on an expectation of future growth in an area that is not currently developed; however, the presence or absence of basic infrastructure will prevent businesses from being able to operate on time and at all within a reasonable cost. Poorly maintained roadways can restrict the movement of heavy trucks and unreliable electricity means an inability to produce.
Areas designed for industrial use with good infrastructures realize many more businesses, and typically return a higher level of return, than areas without. An area that has plenty of logistics support, warehouses, and transportation services is therefore more valuable than one that does not.
Purchasing a piece of land without the adequate infrastructure may represent a lower up-front cost but the challenges of operating a business and lack of appreciation of the value of the property will generally result in lower returns than expected.
Not Evaluating Future Growth Potential
Numerous investors concentrate solely on present-day conditions of the real estate asset being discussed and not on any future growth associated with that property. Industrial property is a long-term investment and will have value based on the future development of the surrounding community.
By understanding if the area surrounding the industrial property will have new government-funded infrastructure improvements (roads, freeways, bridges), have new businesses coming to town (such as a new warehouse/distribution center, etc.), or have government programs aimed at attracting new manufacturers (i.e., economic development), you can expect higher than normal returns and increase your investment.
Conducting research on what new developments will occur in the community where you are considering investing, including new highways, industrial corridors, and logistics parks, can help you make better decisions about whether or not to invest in that area. Generally, the closer you are to areas that are expanding due to the appearance of new and larger metropolitan areas (i.e., adding a new suburb) or developing industrial areas, the more future growth potential that area will have.
Wise investors will always look past today and at future growth opportunities. By neglecting to look for future growth, you may miss out on investment opportunities and may not receive the expected level of return on your investment.
Choosing the Wrong Plot Size and Layout
One of the mistakes within the context of your intended business is to choose an inappropriate plot of land for your new facility, as the wrong size or configuration can directly influence how effectively work will be performed. If the plot is too small, it could hamper your operations, as well as limit. However, if the plot is incorrectly configured, it could result in the inefficient use of interior space.
Industrial space allows for various options depending upon the type of manufacturing that occurs at the location. Factory production, inventory, shipping and receiving, and vehicular traffic flow, have certain requirements for facilitating these activities. If the footprint of the property does not allow for sufficient space, additional costs may be incurred to mitigate these operational issues.
Poor access (i.e., location) to the property will adversely affect the usability and potential resale value, and therefore, those who may be investing in industrial properties should ensure to consider their operational requirements and strategy for future business growth ahead of committing to the purchase of land.
A well-located and well-planned plot of land can create efficiencies that lead to higher levels of productivity and an increase in the overall value of your investment.
Not Conducting a Proper Site Visit
Investors who rely solely on brochures or websites for information on properties are making one of the most common mistakes. A visit to the actual site gives an investor a good idea of what the physical condition and location of the property is, as well as what the surrounding area looks like.
A site visit can also validate whether or not there is good access to roads, whether utilities and infrastructure exist, and what other developments are currently underway nearby. Additionally, it can assist with identifying any potential problems such as boundary disputes, lack of accessibility, or environmental issues.
In addition, speaking with locals or nearby business owners will provide helpful first-hand experience about the area in question. Many times this information would not be available in government records or advertisements about a property.
The importance of performing due diligence through a site visit is to establish confidence and safety in making an investment decision. If an investor chooses to skip this step, there will likely be unpleasant surprises down the road.
Conclusion
Investors will find that the best opportunities for industrial property investment are through the identification of potential pitfalls, specifically those listed below. Concentrating your attention in this area will help you make smart decisions to enhance the value of your investment and optimize your return.
Through a comprehensive and strategic approach to your industrial property investment, you can ensure your investment is safe and will yield maximum returns over time.