Business expansion? New office space for growing flip company

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Business expansion? New office space for growing flip company

Gus MullerBusiness Member
Minneapolis, MN · Member since 2018 · 74 posts · 44 votes

Our company has outgrown our small single room office space (2 years there currently) and we are considering leasing a space with a 5 year term. I have concerns with COVID as I believe the commercial market will soften. I don't really want to buy a commercial space right now either (too much cash down, responsibility, build out, etc). We can't continue to operate and keep on pace for our growth out of the small office and my garage.

The leasing option we have on the table is a premium central location and should be large enough to expand into for future needs. It has 5 offices, conference room, reception area, center "war room", bathroom, small kitchen, total of 1,964 sqft. Plus an additional 268 sqft heated shop space for building materials and tool storage with overhead door. No build out needed, but we will have to furnish. It really is perfect, and expensive ($3,100/month+internet/utilities). Our current office is around $1,100/month.

We have purchased and rehabbed 11 properties this year with an average of around $45K/flip. We have also expanded into the realty side of things for the leads that we can't make a deal on, now offering full service MLS listings through our brokerage. Our plan is to scale the flipping side of things to 24+ houses in 2021, along with snagging public MLS listings along the way.

I am scared of the 5 year lease term. We can sublet in a worst case scenario, and the company that handles this commercial property has a lot of options to trade-up if more space is needed after we meet the 3 year threshold. We haven't been able to find any reasonable and turn-key space that will consider anything less than a 3 year term, and we don't have the time to build out as the leads and volume of what we can buy are stacking up fast and our main focus needs to be on producing income.

Our staff currently consists of 7, some full time some part time (myself, transaction coordinator, office manager, project manager, business development, general laborer, and one real estate agent).

Should we put on our big boy pants? I can't imagine we won't have a better experience in the new space, and close many more flips. We need the organizational space, and I think it would greatly increase company morale, accountability, efficiency, lead generation, networking, etc. We can afford it.

If anyone has some advice, or possibly knows anyone who could mentor me through this I would greatly appreciate it. Thanks!

Gus Muller

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  • Aubrey Maldonado
    Real Estate Agent · Colorado Springs, CO · Member since 2019 · 79 posts · 77 votes
    5y

    Congrats on the success and growth. That's awesome! 

    A five-year lease with expensive rent would make me nervous too. From past experiences working for businesses with high overhead, it seemed like so much of a burden to keep up with expenses that it brought morale down significantly. I don't want to be a killjoy, because it appears you've had great success thus far. 

    If subletting is an option, I've heard of businesses doing short-term rentals for office space they're not using -- like an office hack. I don't know much about it, but I think it would be worth checking. That way, while you're somewhat of a small team, you could offset expenses in the larger space.

    Best wishes to you!

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  • Gus MullerBusiness Member
    OP
    Minneapolis, MN · Member since 2018 · 74 posts · 44 votes
    5y

    @Aubrey Maldonado thanks for the response! Yes the 5 year terms certainly has me twitchy. But we do need some growth space. This is a tough call for sure. We can sublet part or all of the space if we get in too deep as a "worst case scenario". I'll check in with our commercial agent and make sure this is an option. I think we could get $400-$500/month per individual office if needed.

    I've tried to justify the new office by looking at the difference in what we are currently paying for our small office. The new office will be around $2,500/month more X 12 = $30K/year which is basically one flips profits. Can we do just one more to cover it? I believe we can.

    With a reasonable amount of staff on payroll, my hope is that we will save a lot of cash increasing efficiency by having a home base for operations. Fewer phone calls, fewer text message, fewer trips to the various home stores and to my garage. And I plan to train our current staff on deal analysis and deal finding so that they can also contribute and learn that side of the business! 

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