Thinking about investing in real estate and don’t know what kind of property to buy? Take a look at industrial assets in growing cities. Here is a 🧵about one deal I own that is like an ATM machine. 👇
Many industrial properties are trading for far below replacement cost and yet offer functionally the same value to tenants as a new building would which means you can earn great returns if you buy smart.
Industrial vacancies are shrinking in most markets with population growth and yet most investors ignore the space which means opportunities still exist for great buys.
Harbor Capital buys much larger assets than this, but I’ll use an example of a building I purchased personally as it’s a great type of deal for a first time investor. (Would work even if I had borrowed the down payment)
The building was listed on both Crexi and LoopNet so it was available to anyone.
It is a 5400 square foot, 2018 build, with 24 ft ceilings, a 1400 square foot office and is located in an industrial park in The Woodands TX.
The market is growing quickly there and there isn’t much new industrial stock in the pipeline so I felt comfortable with the lease income.
Purchase price was $540,000. It was already fully leased, to a sports facility on a NNN lease with 4 yrs term remaining.
I put $125,000 down and got a loan for $423,000 at 4% interest.
The lease generates $4800 per month and NNN leases mean the tenant covers property taxes and all OPEX.
The lease income is both paying down roughly $1000 per month on debt and throwing off $2500 in free cash flow.
If you were following along, that is $125k in cash to buy, $30k per year in cash flow plus $12k per year in mortgage reduction, not to mention the usual tax treatments available to property owners.
As an added bonus, a similar building in the same compound recently sold for $700,000 so there has been some fantastic appreciation as well. (I bought it well because the seller was desperate to close quickly so some of that appreciation was immediate)
Industrial buildings aren’t considered a hot corner of the market just yet so you typically aren’t trying to outbid multiple other investors to get a deal. In fact this one had sat on the market for nearly a month before I found it.
As long as you are buying a well maintained, flexible use asset in a good location with low vacancies in the area, I don’t think you can go wrong in industrial right now.
That said, there are risks. Be sure you get all the necessary inspections and do your homework on the market. Watch out for older buildings that need a bunch of work and never never buy a building based off a cap rate that is leased over market rate.
Buy the asset not the tenant.
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Serious question here for real estate GPs and LPs: Should long term hold GPs stop modeling out 10+ years and just focus instead on the quality of the asset and the Un-levered yield on cost?
I had a conversation with @moseskagan several months back in Austin and he told me that they model the first year only and it’s stuck with me. Honestly I thought he was crazy at first, but I think he might be on to something.
We all know that the likelihood that your model is correct is near zero. And the further out it goes the less accurate it gets.
In 2001 I decided it was time to go big and try and raise $600k for my first raw-land development deal.
I was 20 and knew literally nothing.
I wrote a 🧵 about how that circus went down. 👇
The deal was a 7.2-acre farmland tract that I had in contract for $530,000. My plan was to subdivide the land into 33 single family residential lots and to sell it to one of the big builders in the area.
Through a friend I found out about Rick, an "eccentric and super wealthy" investor who agreed to give me an hour to pitch my deal"
It’s crazy that you could be about to make the worst choice of your life and nothing would stop you. Not even a little popup to ask “are you sure you want to do that?”
I love this little corner of Twitter we call RETwit. My hope for this community is that we can all be a resource for each other. A safe place to bounce ideas and make each other better for it.
At our best we could be Clippy the paper clip for other investors. “It looks like you are trying to design a six unit apartment, have you met @bobbyfijan?”
(10 simple rules that will make you successful at anything)
I’ve paid more stupid tax than I care to add up, yet I’ve tried my best to not repeat the same mistakes twice.
Here are 10 things that I wish I learned to years ago.
Never leap from little information to big conclusions. If you don’t know enough, keep searching.
Doubt is not a pleasant condition, but certainty is absurd. No one knows everything about anything. There are always variables that you cannot predict. Learn to be less certain about the things that you think you know, and you will become better about planning for the unlikely.
We created a new hire funnel that turned out to be much for effective than anticipated. Instead of a list of requirements to apply, we shared a page on our site with a blank form and asked “Who are you and what makes you amazing”
The open ended question stumps most and they either don’t write or they submit very poorly thought out responses that don’t get a reply from us.
But every once in a while someone understands that their response is the first interview and they blow us away with an explanation of who they are and show their work ethic with their thoughtfulness.