Buying and investing in flex space properties takes smart planning – especially when it comes to your finances. For the greatest chance of success, define clear and detailed financial estimates. Here are eight key steps to guide you through this process:
1.Analyze Current Rent Roll
Start by looking at the property’s current rent roll – that’s the record of who’s renting space, how much they’re paying, and how long their leases last. This helps you understand how much income the property is already bringing in, what kind of tenants are leasing, and how full the building is. This information is the first step in figuring out how much money the property might make in the future.
2.Assess Unit Sizes and Square Footage
Look at the different unit sizes in your building and how much square footage each one has. This helps you see whether there might be opportunities to adjust layouts or pricing to improve profits.
3.Develop Month-by-Month Projections
Build a detailed monthly-by-month financial plan for the first year after acquisition. This will help you spot patterns like seasonal trends, possible vacancies, and changes in cash flow, allowing you to plan ahead and manage your finances most effectively.
4.Prepare Year-Over-Year Summaries
Next, expand your projections to cover multiple years. Looking at year-over-year summaries helps you track how the property’s performance might change over time. It also shows whether your business strategies – such as raising rents or upgrading units – are actually making a positive impact.
5.Break Down Loan and Closing Costs
Clearly lay out all the financing details, including loan amounts, loan schedules, interest rates, and any closing costs. Knowing these numbers is key to figuring out how much profit you can expect and whether the investment is truly worth the costs.
6.Estimate Operating Expenses
Identify all operating expenses associated with the property, such as maintenance, utilities, property management fees, and insurance. Knowing this information allows you to accurately estimate the property’s net operating income.
7.Calculate Net Operating Income (NOI)
To find out how much the property is really earning, subtract the estimated operating costs from the total projected income. This gives you the NOI, which is a key value used by lenders and investors to judge how well an investment is performing.
8.Conduct Sensitivity Analysis
Run sensitivity analyses to see how your numbers change if key factors, such as occupancy rates, rental rates, and operating expenses, go up or down. This helps you to identify possible risks ahead of time so that you are able to come up with backup plans.
By carefully working through each of these steps, you’ll build strong financial projections that can guide smart, confident decisions in the flex space market.
Content developed in conjunction with Cody Payne and Michael Tran of Flex Parks USA.
