How to invest in industrial property

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PROPERTY investors with an eye for extra income are increasingly looking into industrial real estate.

Buying factories, warehouses and workshops may be cheaper than you think, although property specialists warn that they come with many differences that would-be investors need to understand.

Industrial propertys income yield is higher than residential property, at about 6 to 9 per cent compared with 3 to 3.5 per cent, but comes with higher risk, says Metropole Property Strategists CEO Michael Yardney.

When they become vacant, they are usually vacant for a long period of time, he says. It needs somebody with deeper pockets who can afford to hold onto it.

It also is a much more complicated lease, usually organised by a solicitor, for longer periods of time usually a minimum three years with a couple of options (to extend the lease).

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Like other forms of commercial property, leases are based on net rent which means outgoings such as council rates and maintenance are paid for by the tenant. Investors also need to deal with GST, and rental income that is typically linked to inflation, which is currently low.

Many smaller industrial properties can cost between $350,000 and $500,000, below median house prices in most capital cities.

High rental returns and low interest rates are driving more residential investors into the industrial property market, says asset management company Bawdens Industrial.

Managing director Barry Cawthorn says cash flow is king, and that is what industrial property delivers.

Astute investors are realising you cant eat capital growth, he says. We are witnessing a shift towards investors purchasing industrial property in their self-managed super funds to generate an income for life.

Cawthorn says statistics show that the average annual return of industrial property for the year to March 31 was 15 per cent.

Newspapers and websites such as realcommercial.com.au are good places to search for industrial properties, and some have handy online guides and tips.

Yardney says new industrial property investors sometimes fail to recognise that they should be getting a higher yield than they do on houses. When buying smaller properties within a complex, always check that car parking is sufficient, he says.

Buyers should look for properties that have quality tenants, a flexible layout and are close to freeways for transport.

High ceilings are important because a lot of people stack and store.

People nearing retirement may benefit from industrial propertys higher cash flow.

We often recommend industrial properties or other commercial properties to clients to blend the mix, Yardney says.