The industrial real estate market in West Texas holds remarkable investment potential that many investors overlook. While major markets across the country struggle with compressed returns, the Permian Basin region offers significantly higher yields. Larry Nielsen, an expert in West Texas real estate, has been guiding investors to capitalize on these hidden opportunities, particularly in the booming oil and gas sector that drives the region’s unique economic ecosystem.
Higher Returns in Oil Country
What makes West Texas stand out from other markets? According to Larry, it’s all about the numbers. “Most people do not know that there are prime investment opportunities here in West Texas, specifically the Permian Basin region,” he explains. The difference becomes clear when examining capitalization rates—the expected rate of return on a real estate investment. “Cap rates across the United States on buying industrial real estate is anywhere from six and a half to about seven percent,” Larry notes. “That’s still a good number. But that doesn’t make sense when today’s interest rates are around eight and a half.” This mismatch creates a negative cash flow situation for investors relying on traditional financing in most markets.
The Permian Basin tells a different story. “Right here in West Texas with oil and gas, we’re kind of our own little biosphere. The average cap rate or rate of return on your investment is anywhere between eight and a half to 12%. That’s huge,” Larry emphasizes. This significant advantage attracts investors looking for yields that outpace current interest rates.
Understanding Local Market Dynamics
The Midland-Odessa area isn’t just any oil town—it’s the epicenter of American energy production. “Midland is in the Permian Basin, which is the most prolific oil and gas shale play in the United States. It’s where we get 80% of our oil domestically,” Larry points out. This concentration of activity drives demand for industrial properties. What many outside investors miss is how the market has evolved. “Today’s oil field needs less personnel but more equipment,” Larry explains. This shift means successful properties feature a specific configuration: “20% office, 80% warehouse.” Buildings meeting these specifications attract major tenants—”Fortune 500 companies, billion-dollar companies that come down here to work in the oil and gas region.”
For individuals with $1-3 million seeking better returns than traditional investments, Larry recommends focusing on two critical factors. First, tenant quality: “What is the credit strength of the tenant? Can they pay their bills through the term? Are they making money? Does it look like they’re prospering here in the Permian Basin?” Second, lease structure matters significantly. “In West Texas, we have what are called triple net leases,” Larry explains. “The tenant pays the rent. The tenant reimburses the landlord for the insurance and for taxes on the property. Every month the landlord gets all three of those and owes nothing.” This arrangement minimizes carrying costs for owners.
Adapting to New Market Realities
The traditional investment model of securing decade-long leases is becoming rare. “With all the volatility in the world, investors have to get their mind around the fact there’s no such thing anymore as 10 to 20 year leases,” Larry cautions. Instead, three-to-five-year terms are becoming standard. “Investors typically like to be hands off, get a lease for 10 years and not have to worry about it,” Larry acknowledges. “That’s just not the norm anymore with what’s going on in the capital market today.” He attributes this to broader economic factors and the accelerating pace of business. “The world is super quick now with AI. Everything’s going to become a microwave type deal where it’s super quick.”
Larry believes more investors should recognize the wealth-building potential in industrial real estate. “I just wish people would have more understanding of how much money they can make in the industrial real estate market. It’s kind of like a hidden niche,” he says. The combination of quality tenants, favorable lease structures, and higher returns creates compelling opportunities for those willing to look beyond residential or commercial retail properties. With proper due diligence and local market knowledge, West Texas industrial investments can deliver exceptional performance that outpaces most alternatives in today’s environment.
Connect with Larry Nielsen on LinkedIn to learn more about high-yield opportunities in West Texas industrial real estate.
