A comprehensive analysis of wealth in different real estate asset classes.
Most of you guys have invested in real estate or are actively investing in real estate, so you’ll be a bit familiar with what we are diving into today. My goal is to put some things in perspective for you, so you can really take a look at what building wealth in real estate truly looks like.
Comparing Flex Space to Multifamily
Now, $500,000 might seem like a strange number to most people who don’t know my story but this number is very relevant to me. When I first came to the United States, I invested about $420,000 in 2014 into a piece of land that jump started my journey into flex space real estate. The $420,000 got me a 3.7 acre tract of land for flex development, and I was able to sell it in 2018 for $6.1M. The sale gave me a take-home total of $2.8M after all the fees and commission costs, this was INSANE and unheard of in this time for real estate.
During the time of this flex deal, I was also invested in a multifamily deal that I had purchased for $800,000 and ended up selling for $1.2M. After costs, commissions and fees, I ended up taking home $250,000 for a project that was easily five times as hard and filled with tenant headaches when compared to the flex space investment.
When I look into a deal, and the return on investment, I don’t just look at the numbers. Don’t get me wrong, they play a bi role; however, what I found through investing in both flex space real estate and multifamily real estate, is that the EFFORT plays a big role in your returns as well. When I was invested in multifamily, it didn’t matter if I had a project manager, I still had to account for all the problems that occur at these apartments. During Hurricane Harvey, I had to personally deal with the aftermath, and even on a daily basis I would get calls constantly about tenant issues. I’m not going to lie, it’s stressful.
Now, when we compare this to flex space development, the whole thing runs much smoother. The tenant profile consists of businesses so I don’t have many issues if at all to worry about, and the operations of this asset class is extremely low. That’s when I knew I had to make the switch from multifamily to flex space, I could go back to enjoying my life with my family rather than being in constant stress of the next thing to go wrong. And the numbers for flex space don’t hurt either.
This is what a Flex Space Real Estate Development looks like.
What you’ll notice is that these are all single story products and these buildings actually take about a day to erect, believe it or not. One day, you could walk on site and there’s nothing; the following day, you could have five or six fully erect buildings. As far as city codes and zoning, I’ve found this asset class extremely easy to build and it’s something a lot of people have a hard time understanding when it comes to commercial real estate
Let’s look at this from a larger perspective:
From a macro level, we are seeing a lot of institutional equity moving into the Flex Space Real Estate asset class which leads us to believe that this will be the next big thing in real estate. In my existing flex spaces, we are seeing a 4.9% vacancy rate, tenant lease duration averages around 2 years and your average annual returns, including cash flow, plus appreciation is roughly around 32%. If you guys are building these in two or three years, the returns on your initial investment are significantly high.
Ideally with a Flex Space Real Estate Development, you should be allocating yourself 9-12 months for permitting and 9-12 months for construction with the goal being 18 months total from start to finish. Now of course, as things are getting more difficult on the logistics side of things, we are now seeing the average completion time going from 2 years to about 2 1/2 years. Why? We’re seeing shortages in materials and equipment that aren't reaching our site on time but over time, this will stabilize moving forward as well due to how in demand these flex spaces are.
Here’s a really cool tenant that I have at one of my Flex Spaces:
This tenant is an event coordinator and what’s interesting that originally, she had been running her business out of a U-Haul truck so when she had approached me about leasing out a flex space, I was curious to if she was going to be hosting events in the flex space and believe it or not, she actually hosts parties here and when her truck isn’t on site, she’s working and actively bringing in income. It’s really cool to see these types of businesses moving into flex because not even 5 years ago, these types of businesses were no where to be found.
Now let’s look at retail, or office space:
Touching base on our current office development for Hamza Invests, we’re seeing permitting becoming increasingly difficult day to day so it’s getting harder for us to move into these types of retail or office type buildings. This isn’t the case with Flex Space, you can move in as soon as the building is erect, essentially.
When you are looking at how to create wealth investing in real estate, take a look at the opportunities in front of you, and definitely take into account the time-value of money as well as the effort needed to get where you want to go. The Industrial Real Estate Market is hot and it’s only getting hotter. More and more people are getting used to dealing with businesses online; this is a trend that is going to continuously increase which means that the demand will increase as e-commerce gets larger and more businesses are born that need warehouses to store inventory.
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