Evaluating Commercial Real Estate

Dedicated readers of the Hamza Invests blog know that I am firmly committed to commercial real estate investing — and have been for some time — as opposed to multifamily. If you’re new to the blog, welcome! We won’t be going in-depth on that today, but if you’d like to read about my reasons why, click here.

‍

Since we know that flex space is superior to multifamily as an investment, we’ll go over how to evaluate commercial real estate so you can make the best decision for yourself.

‍

‍

Look for something brand new

I like to build projects from the ground-up. Brand new developments are going to be far less of a headache to keep around, especially if you plan to hang onto yours for ten years or longer.

‍

When looking for land, I first think about who my potential tenants will be. Flex space units are largely going to be used by the smaller mom-and-pop businesses, and will be operating close to residential neighborhoods.

‍

Find land that’s available for a fair price, close to these areas. My rule of thumb when deciding on a tract of land is that there must be a minimum of 900 homes within a five-mile radius. In my experience, having this volume of homes generally means there will be enough demand for the kinds of services that will operate out of a flex space — businesses like HVAC repair, landscaping, swimming pool supply stores, etc.

‍

Find the high-growth corridors

Another crucial factor influencing where I build my flex spaces is finding the main roads that are showing a continued increase in movement from city to city — for example, Austin and San Marcos, Texas. There’s been a lot of growth here as Austin becomes an increasingly expensive place to live and residents move to the outskirts where there are still major services and facilities available.

‍

However, you also want to take note of how much flex space is in close proximity to your potential development. If the area is looking saturated, it may not be for you.

‍

‍

Know the price points

Here’s where you need to walk the line in making sure you’ll be making enough profit to ensure the viability of your project, but without discouraging potential tenants from conducting their business. You need to try and find out what tenants are willing to pay in rent now, and several years down the road too.

‍

Other things to consider include the age of product nearby, as older, cheap developments can undercut the competitiveness of a new build. Zoning is another factor — if the land has been zoned commercially, I’ll need it zoned for industrial purposes. This is more time and money that will have to be weighed out. Not to mention the cost and ease of construction — it is far too easy to let this process extend your timeline and budget far beyond your initial expectations.

‍

Let’s really get into it

We’re just scratching the surface when it comes to evaluating potential real estate investments, though. While flex space is a far less exhaustive endeavor than multifamily, there are still plenty of areas where mistakes can be made.

‍

I’d love to help you avoid all of the pitfalls that can be made when diving into these investments. Join me over at Flex Space Untapped and let’s talk about how you can navigate the twists and turns of this world and come out on top with your project. I’ll see you there.

‍