Are you looking for a real estate investment that offers better than average returns and lower than average risk? Investing in industrial property that is in the early construction stages, and not yet ready for occupancy, may be just the right opportunity for you.

Pre-leasing industrial property is the process of securing leases with tenants in advance of a scheduled occupancy date. As the property owner, you benefit by having tenants ready to move in when the industrial space becomes available for occupancy. Tenants also benefit by being able to get better terms on their lease or rental agreement because they are willing to make a commitment prior to the time when the property will be available for occupancy.

Pre-leasing industrial property can benefit a wealthy individual in two ways. First, it can provide a steady rental return during the duration of the lease and then, the building or property can generate capital gains when it is eventually sold. Typically, annual returns on industrial space are in the 9-15 percent range, which compares favorably to the 3 – 6 percent yield you can expect to receive on residential income property.

Annual yield is calculated by dividing the annual carrying costs such as a mortgage note and maintenance of the property by the rental income generated each year. As a property owner, you are also able to achieve certain tax benefits on your leased property.

Acquiring high quality tenants through a well planned pre-leasing strategy can improve the yield that you can earn on your investment. It goes without saying that you will earn a greater return on your investment if you can purchase the property at a low price and then lease out space at a high price.

Negotiation of the lease you sign with each tenant has a lot to do with the potential yield you can earn. While there is no set length of a lease, most properly structured leases should have an escalation clause in them where the annual rent adjusts upward. Typically, the escalation clause is tied to an inflation based index.

Depending upon your investment goals, you can purchase an industrial property that has already been pre-leased and has paying tenants, or you can purchase a new building and find tenants on your own. Property that is in a good location and offers more amenities to tenants will be in high demand and can command higher rents. As a real estate investor, your total yield includes both your net rental income and any capital gains you realize when you sell the property.

Pre-leasing industrial property is less risky than many other types of investments because your income is guaranteed by the rents received from your tenants. Capital appreciation due to rising property values also contribute to the value of this type of investment.