Buying your first warehouse - Considerations for the ‘Long-Term’. A Comparative Study.

In the final part of this very informative series, Tsimos talks tactics regarding factors to consider in order to purchase an industrial property asset for the long term. In a slightly different forum, this time the Directors provide us with two comparative industrial properties in order to share their tips and advice. – They walk us through each illustrating opportunities versus considerations.

The first example warehouse type is a fully fitted 309 sq. metre strata titled ‘off the plan’ new high-quality office in an industrial estate, offering many benefits such as the opportunity to purchase now with a lead time to organize finance for settlement in 6 moths time, and a lead time to find the right tenant. Other benefits of these smaller new low maintenance sites offer is the ‘ready- to -do -business’ standard layout of offices upstairs, showroom or retail downstairs, and warehouse behind. Let’s take a deeper dive into this off -the -plan, fit -for -purpose example. A total investment of a bit over $900,000 would produce a net yield of about 5 % -very acceptable given interest rates. Other advantages are depreciation which is tax deductible, capital growth and low maintenance. Perfect for the ‘set and forget’ investor looking for high leasing demand and tax incentives. As well, the low maintenance has a compounding effect over the long term.

So, what are some of the considerations to weigh up against the benefits?

These ‘low touch’ easily tenable investments are a part of an owner’s corporation which means that you would be limited in terms of adding value by making cosmetic changes to the property.

From a long-term perspective these ‘set and forget’ properties are attractive to owner occupier purchasers who want to look smart and ready to showcase their businesses. There is a lot of demand from investors, owner occupiers, and SMSF investors wanting the ‘set and forget.’

Then there is the second example of warehouse investment. Here we have the complete flip side to the ‘set and forget’ option.  An alternative warehouse purchase is the typical freehold property, offering very good opportunity to customize to yours or a tenant’s needs, adding more value through renovating the façade, updating the office, adding a second story, adding more sq. meterage etc. From a freehold title perspective this provides a lot more flexibility either for rezoning, revamping, renovation or both. As such, these types of older free-standing properties are always in demand from owner- occupiers. Other benefits with a freehold property where you are also buying a block of land, are from the access point of view, i.e. the ability to park containers, adding more offices to the site and increasing sq. meterage. etc. This can present an even greater opportunity if you have the time and the will to upgrade. Like buying a house versus an apartment, this flexibility to add value will provide greater long-term capital growth.

The considerations on the other hand?  Obviously, the rent and therefore the yield to the investment would be lower than on a new modern building. Also, instead of dealing with an owner’s corporation, in this instance as a landlord you would be dealing with council requirements. On the finance side, as these properties are in high demand, you would need to have your deposit ready and be ready to go.

So, in summary, both style of warehouse properties offer pros and cons for the long-term investor.On the one hand we have the set and forget minimal fuss option, clean neat with more complexity with no maintenance and then the option of the freehold which offers customisation opportunities but will require maintenance and some ready finance.

Still not sure of the most appropriate option for you? Let the team at Tsimos guide you …