Define Your Budget

Once you get a handle on market values and how much cash you have, you can work backwards and figure out how much space you can lease/buy.

Purchase example:

Assuming the following: You have $1,000,000 cash and buildings sell for +/- $70 per square foot.

Conventional financing requires a 20-25% down payment – $1,000,000 is 25% of $4,000,000.

Dividing $4,000,000 by $70 per square foot results in 57,000 square foot building.

The lender will typically require that your cash flow be 130% of your debt service.

Bear in mind that you will also have taxes, insurance and maintenance to pay for as well. There are tax benefits to owning and appreciation can be an extra bonus.

Real estate values can move up and down with business cycles and entrance and exit timing strategies are crucial in maintaining and maximizing value.

Lease example:

This is largely determined by your cash flow.

Rents can be quoted in various ways.

Industrial lease rates can be gross, modified gross, net or modified net. The difference is how much of the variable costs (taxes, insurance and maintenance) the tenant has exposure to.

Other terms of the lease, such as annual escalations (can be a fixed or variable % or be based on a CPI Consumer Price Index), responsibility for utilities cost, insurance and insurance deductibles are examples of other expenses that should be considered.