Is flex space the next big thing? They’ve gained popularity, are ideal for novice commercial real estate investors, and the market remains strong. Discover why these versatile spaces are in high demand and the incredible opportunity they present for investors.
What is Flex Space?
Flex space is already a popular and fantastic choice for investors due to its versatility and high demand. It’s essentially a small metal building, typically starting at around 10,000 square feet, combining industrial warehouse space with office areas. Most of these buildings are single-story with tall 14-foot ceilings and large warehouse doors. This setup is ideal for a variety of small businesses. Typical tenants include blue-collar businesses like auto detailers, fitness centers, small manufacturers, artists, and even niche businesses like pickleball courts, which require a flat surface and tall ceilings.
Flex Space Case Study:
One of our students, Dean, invested in flex space and rents out part of his 5,000 square foot property as a CrossFit gym for $3,000 a month. He has 11 other spaces for small businesses, including a vending machine company, a tire repair shop, and an antique furniture store. You can find out about our multi-million dollar deal with Dean in this case study here: No Bank Loan Real World Commercial Deal
What’s Driving Demand
I own a golden retriever and provide her with a raw food diet. Some years back, when I started this regimen, I found a supplier in an industrial complex with ten single-story flex spaces, with the supplier taking up two. As I left, driving down the street, it struck me that the entire area was filled with flex spaces, all bustling with activity. Clearly, the demand was tremendous. But what’s driving this high demand today?
- Affordability: Flex spaces offer low rent, making them ideal for startups and mom-and-pop small businesses looking to grow.
- Versatility: Small businesses can thrive in these spaces due to the combination of office and industrial areas.
Benefits of Flex Space
High Occupancy Rates: Flex space is currently one of the most sought-after types of commercial property, with very high occupancy rates. In fact, in some cities, it’s as high as multifamily. A recent Business Observer article reported that the vacancy rate for flex space in Sarasota, Florida has reached a record high of 3.7%. Wouldn’t you like to have this problem? Wouldn’t you like to be at 3.7% vacancy in your commercial property type? And this trend is consistent in cities across the country. Comparing this to the office buildings in my city, where vacancy rates are as high as 47%, it becomes obvious that there are significant opportunities for investors in this market.
Triple Net Leases: They are also a great opportunity to use triple net leases. A triple net lease is a rental agreement where tenants are responsible for taxes, insurance, utilities, and repairs and cost associated with operating the building. This essentially eliminates landlord expenses, and all you do is collect rent, pay your mortgage and the rest is cashflow. Learn more about how to use this strategy here: Truth Behind Triple Net Lease
Resilience: Flex spaces proved resilient during the COVID-19 pandemic. The unique layout of these spaces means businesses housed within them could continue even with restrictions. Unlike traditional office buildings with shared communal spaces, flex spaces typically consist of isolated units with few employees.
For these reasons and more, this is a great asset type to add to your commercial real estate portfolio in addition to multifamily, self-storage, and mobile home parks.
How to Find Flex Space Deals
What to Look For:
- High Growth or Low-Cost Areas: Look for properties in high-growth corridors or established low-cost areas. Flex spaces don’t need prime real estate frontage because those areas are too expensive. Remember, one reason flex space is in demand is because it is economical. Look for areas with a lot of land and lower-level building, like single story industrial parks.
- Size Matters: Aim for properties with at least 10,000 square feet and an acre of land. The larger the space, the better the cash flow and return on investment. So go as big as you can afford.
- Central Location: Ensure the property is accessible to transportation, highways, and urban areas, but not too close to city centers where costs are high.
Where to Search:
You can start your search on platforms like LoopNet.com and Crexi.com to get a feel for the market and the tenants. However, this isn’t where you will find deals because the prices are too high. The best deals are off-market properties directly negotiated with property owners. These deals are more affordable and allow for creative structuring around the seller’s motivation. No agents are involved, it’s just you and a seller building a relationship and creating a great deal for both sides. That’s why we teach our students to find and evaluate off-market opportunities, so that we acquire our deals at the right price.
Questions or Comments? Text PETER to 833-942-4516.
Every Successful Commercial Real Estate Investor Has a Mentor
Flex space offers a fantastic opportunity for investors looking to diversify and tap into a growing market. If you’re interested in flex space investing, consider applying for our protégé program, where we help our students find, finance, and manage flex spaces, and even help to build them from scratch! Every successful commercial real estate investor has a mentor. Get your mentor here: Commercial Property Advisors Protege Program
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