Net yield will determine if an industrial real estate property OR storage facility is producing the necessary cash flow to support a commercial loan. Also, you can compare your net yield with comparable market net yields for your industrial asset class to determine if the bank will lend on your industrial property. A market yield can change over time, depending on supply and demand.
In order to calculate net yield for your storage facility or industrial real estate property, understand the net yield formula you should calculate in order to determine if you should move forward with your industrial asset purchase:
NOI (Net income per annum) = total gross rent – total expenses. Net yield = NOI/Purchase price x 100%
Similar to capitalization rate or CAP RATE, the Net Yield has an inverse ratio, which will determine the price for the industrial real estate property. In other words, the lower the cap rate the higher the value or caliber of tenant your industrial property will support, and the higher the loan amount the commercial lender is willing to lend. Recently, industrial properties have achieved stronger Net Yields and faster growth due to an increase in demand as more businesses move online and the demand for commercial storage has increased. In addition, more investors and commercial lenders are more comfortable with industrial properties and storage facilities. Recently, retail growth has slowed as a result of greater competition from online businesses. As a result, investors for industrial properties and storage units are willing to spend more if the commercial bank or business lender is less conservative with lending on a commercial industrial property with yield compression, which is another way of saying capital growth.
Industrial property financing is often described as a game. When financing industrial properties or storage units, we at Trim Financial recommend taking advantage of commercial loans, even if commercial property investors have the cash to purchase the industrial property without commercial financing. A simple reason for taking advantage of commercial loans for industrial properties and storage facilities is to maximize your returns or leveraging your industrial property investment.
Leveraging has the additional advantage of allowing the industrial property investor to invest with less cash when purchasing storage units or industrial warehouses. This is a game changer! You, as a commercial investor will be in a better position for additional industrial purchases or a refinance of your storage units, which translates into more commercial property income sources and more commercial portfolio diversity.
We at Trim Financial recognize the power of leverage to increase returns for the industrial property investor. Here is an example of an industrial property purchase with all cash versus 70% finance for a storage facility:
All cash purchase of an industrial property:
Purchase price of storage units: $4,500,000 with all cash
Purchasing costs for storage units: $300,000
Reserves or buffer for storage units: $200,000
Potential return when purchasing an industrial property with a 7% net return and tenant pays all expenses (NNN): $315000
Versus 70% LTV finance of storage units:
$1,200,000 deposit on a $4,000,000 purchase of storage units
$250,000 to cover purchasing costs of the storage units
$650,000 as reserves or buffer for the storage units
Total Return for your storage unit finance: $546,000
The loan structure for an industrial property or storage units is different than residential financing. Given that a commercial property investor won’t be purchasing an industrial property outright, understanding the difference between commercial and residential financing is important.
In essence, commercial banks or business lenders are looking for a few key criteria for lending on storage units:
If a commercial investor has these key components prepared before applying for an industrial property loan, the commercial bank or business lender is more apt to sign an approval for your storage facility finance.
We at Trim Financial strive to make your commercial loan application process easier and less stressful. We have access to a wider range of commercial lending options, including non-bank lenders. Often non-bank lenders are more competitive when financing industrial properties or storage units.
Many commercial financing options are available for industrial properties. Our commercial loan experts at Trim Financial will help you determine which commercial loan is the best option for your storage unit purchase, whether a short-term bridge loan of a year to a fixed term of 10 years with either a 25 or 30 year amortization.
Fill out our pre-qualification form and one of our commercial loan experts will contact you to get you started on buying or refinancing your commercial property today!