Is Flex Space Profitable With High Interest Rates?

Habibis, I have some bad news: we’re in a recession.

‍

I know, it’s shocking. And yes, we’re starting to really feel it with the current interest rates. At the time of writing this blog post, we’re at 7.72%. That is high. I’m getting calls daily from realtors, multifamily operators, and house-flippers about how the economy is impacting them in a big way. Real estate guys are hurting — but not me.

‍

Why, you ask?

I’ve prepared for this situation. Recession are simply a part of the economic cycle; it’s happened before, it’s happening now, and it’ll happen again.

‍

This is something I’ve been waiting for, and thus, have planned for.

‍

You’ve heard me say it time and time again — flex space real estate is recession-proof. But don’t just take my word for it; this has been tried and tested in 2016 with my very own properties. I actually saw an inverse effect with this asset class during that time, and had a two-year waiting list on my properties. As the recession hit Houston, e-commerce surged, and big companies were looking to downsize into smaller places with flexible leases. Guess who had the product these businesses were looking for? Me.

‍

So, are interest rates impacting my construction?

‍

Of course — they’re impacting everybody’s construction.

‍

Why develop flex space real estate then?

Because the returns are extremely high, and the leasing process is easy. The process is so simple that paying a little bit more money right now to build these developments is a no-brainer — and that’s not even accounting for the fact that the first thing that drops in a recession is land.

‍

It’s not even denting my pocket when it comes to calculating my returns at the end of the day. With my developments, I’m seeing a two-to-threefold return on each project. That’s easy over five years.

‍

With the current interest rates, it would be 1.9 to 2.9x instead — and that doesn’t make a big difference.

‍

We never stop building. We need to keep building flex space and we need to keep leasing. We need to build these projects now. The reality about these high interest rates is that not a lot of people are building. People are afraid.

‍

This actually works in my favor. By building when nobody else is, I actually end up getting a discount on labor and material because of the drop in demand. In a way, high interest rates are helping my business.

‍

I’m able to leverage the interest rates to get material at a discounted price. The demand for the project is still high, and will continue to grow during a recession.

‍

The next few years at Hamza Invests are going to be insane. We already have four projects in the pipeline, and I’m always looking for new land.

‍

You won’t want to miss out on these upcoming builds. Make sure you’re signed up for my newsletter so you never miss out on the exciting progress here.