Advice for a guy looking to buy industrial space for my business.
Hi all. I’m looking to buy space for my business. I’ve had flex space for the past five years and now it’s becoming apparent that it would be entirely cheaper to pay a mortgage on some property rather than pay somebody rent forever.

I’ve been keeping my eye out for flex space around my town for sale. I have been looking for something like 2000- 3000 square feet. There’s not much in the way of space like that around here for a straight up open-space free standing building. It occurred to me that I’ve been looking at the situation wrong and perhaps I need to think bigger - like a building with 10k sq feet. I need nowhere near the sq footage of that but my thought would be to split it up into a few spaces and rent them out.

It sounds simple on paper but I’m aware enough to know that’s never the case. I was wondering if any of you could give me some tips on how I might start this process and have my ducks in a row if I come across a building I like. What steps would I need to take with the city in splitting up property for address purposes? Should I find a commercial management co. to find potential tenants? What kind of insurance do I need or is that always on the tenant? What pitfalls will I run into? How do you determine a fair rent?

I might find that this too much for me to handle but figured it would be good to look into all possibilities.
[{"id": "ff463p8", "text": "What city?", "replies": [{"id": "ff46znn", "text": "Indianapolis", "replies": [{"id": "ff4l3o8", "text": "What cap rates are those sized properties trading for?", "replies": [{"id": "ff5xbtn", "text": "Hard to say considering the area can get pretty diverse depending on location. One building I was looking at would have been around 15%", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ff47b66", "text": "Do you have financing lined up? Easiest way is to ask listing agent if city will let you set up walls to lease out extra space. Could get expensive; framer, HVAC, electrician, plumber, fire sprinklers, drywallers, painters, ect. Maybe cheaper to buy a building that already has separate suites. Multiple businesses can use the same building and address. A commercial developer builds? So you probably want a CRE broker or agent to list for you. Renter's insurance exists. You can always buy more. Look at your business plan, how much is rent compared to mortgage payments less rental income? How many units do you need to rent to stay in the black? What is vacancy rate in the area? Fair rent is determined by market prices, look at what everyone else with similar building is charging per sqft.", "replies": [{"id": "ff5xj01", "text": "How would I determine vacancy rate realistically?", "replies": [{"id": "ff6fshx", "text": "My firm owns multiple industrial parks in Indianapolis. We rely on the word of high quality brokers (big name shops who tenant rep credit tenants) to confirm what we see in market reports. Beyond that it\u2019s always some good old drive by\u2019s and seeing what\u2019s out there being marketed by your own eyes to confirm if the market reports+the brokers are saying to you", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ff4a7nf", "text": "Your best move at this moment is to find a quality commercial real estate broker in your area. They will know the market, the process, current market rents, and can advise you on all of it.\n\nFrom a financing perspective, know that there is a clear distinction between \"owner occupied commercial\" properties and investor properties.\n\n* Owner-occupied commercial - your own business occupies &gt;50% of the rentable space for its own operations. You can qualify for SBA (Small Business Administration) financing that makes the loan less risky for local banks, and allowing them to lend to you at higher leverage than traditional. The underwriting would revolve around your business and its history of profitability (sans paying rent).\n* Investor - now the underwriting shifts to the property and your track record as a real estate investor. Leverage is much more modest if you're a newbie, as your business is only one of the tenants and your savvy as an investor and asset manager is the biggest indicator of the property's future finances.", "replies": [{"id": "ff51g5r", "text": "&gt; Owner-occupied commercial - your own business occupies &gt;50% of the rentable space for its own operations. You can qualify for SBA (Small Business Administration) financing that makes the loan less risky for local banks, and allowing them to lend to you at higher leverage than traditional\n\nThis is key. You'll want to occupy 50%+ if you can.", "replies": [], "depth": 2}, {"id": "ff5xnso", "text": "That\u2019s very good to know. Thank you.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ff4b4kl", "text": "It sounds simple on paper but I\u2019m aware enough to know that\u2019s never the case. I was wondering if any of you could give me some tips on how I might start this process and have my ducks in a row if I come across a building I like. What steps would I need to take with the city in splitting up property for address purposes?\n\nGo to city hall for zoning and planning, and fire and safety. Let them know what you're trying to do and someone can probably give you a packet for the municipal codes.\n\n Should I find a commercial management co. to find potential tenants?\n\nDefinitely use an agent and maybe even a prop management for tenant lease up. Commercial leases are complicated, and with industrial space you want to protect yourself from bad tenants, or tenants that will try to push the permitted uses.\n\n What kind of insurance do I need or is that always on the tenant?\n\nAsk Insurance agent. \n\n What pitfalls will I run into?\n\nFinding a property is easy, Tenant stuff is easy, cities and municipal codes are tough. \n\n\n How do you determine a fair rent?\n\n\nWork with an agent, they will calculate price per square, TI, and other terms.", "replies": [], "depth": 1}, {"id": "ff4hrc4", "text": "Buildings under 10K SF are hard to find.  Look for sale listings of buildings at 30K SF and smaller.  The call the broker with the majority of those listings.   That\u2019s the broker to help you. \n\nYou\u2019re welcome ;)", "replies": [], "depth": 1}, {"id": "ff5c2mq", "text": "Depends on your market but it\u2019s totally doable.  You\u2019ll have to occupy 50% of the building.   Ideally look for a building that is easily divisible (multiple entries, bathrooms ect)", "replies": [], "depth": 1}, {"id": "ff6g9j8", "text": "Also throwing it out there, not sure if these exist in the Indianapolis market, but there could be some industrial condo\u2019s up for grabs. If it\u2019s in a larger park you can have the same benefits of owning your space (and the SBA financing does it). If you find the right space that has the possibility of subdividing that\u2019s a great advantage. For a first time owner it may be better from the perspective of paying into a Central Prop Mgmt organization that would handle the annoying small things like landscaping and snow removal. Another upside to consider is that if it\u2019s something you grow out of, you can collapse the subdivisions into one larger space of all the SF you bought and being in an established industrial park *may* make the subsequent space more appealing to lessor\u2019s down the road.", "replies": [{"id": "ff7vv2i", "text": "Industrial condos... now there\u2019s an idea. Never heard of em but I\u2019ll look into it for sure", "replies": [], "depth": 2}], "depth": 1}]