Typical returns, cap rates, lease structures, and cost per square foot. Set realistic expectations before you break ground.
Every "fill this building and you'll make a fortune" pitch hides a dozen assumptions. The contractor garage space is no different. Realistic ROI expectations are the antidote to optimistic proformas that blow up in year two.
Before you build a single bay, internalize these benchmarks. They represent what a well-executed contractor garage development actually returns — not what a broker promises.
If someone promises you 15%+ cash-on-cash in year one, ask them to show the occupancy assumptions. If they assume 90% occupancy month three, they're selling you a fantasy.
Here's what a 12-bay contractor garage development actually costs in a secondary market (not LA, not NYC — places where land is $1-3/sqft):
| Line Item | Typical Range | Per Bay (12 bays) |
|---|---|---|
| Land acquisition | $150,000 - $350,000 | $12,500 - $29,000 |
| Site work & grading | $45,000 - $85,000 | $3,750 - $7,100 |
| Building construction | $180,000 - $280,000 | $15,000 - $23,300 |
| Utility extensions | $25,000 - $60,000 | $2,100 - $5,000 |
| Permits & soft costs | $20,000 - $40,000 | $1,700 - $3,300 |
| Contingency (10%) | $42,000 - $81,000 | $3,500 - $6,800 |
| Total Project Cost | $462,000 - $896,000 | $38,500 - $74,700 |
These are order-of-magnitude numbers. Your specific market — labor costs, permit timelines, availability of ready-to-build lots — will shift these by 15-25% in either direction.
Land is rarely the problem. It's the utility extensions that kill deals. Before you sign on any lot, get a written utility estimate. Bringing 3-phase power 300 feet can add $40-80K — more than the land itself in some cases.
Contractor garage rates vary by market, but here are the operating ranges:
Your rent should be 5-10% below the highest comparable flex space in your market at launch. Price too high and you languish vacant. Price too low and you leave money on the table and hurt your exit cap rate.
Here's a sample proforma for a 12-bay project with $600K total cost, 70/30 debt-to-equity financing at 8% interest:
| Metric | Year 1 | Year 3 | Year 5 |
|---|---|---|---|
| Occupancy | 65% | 80% | 85% |
| Gross Revenue | $46,800 | $57,600 | $61,200 |
| Operating Expenses | $18,000 | $19,800 | $21,800 |
| NOI | $28,800 | $37,800 | $39,400 |
| Debt Service | $43,200 | $43,200 | $43,200 |
| Cash Flow | ($14,400) | ($5,400) | ($3,800) |
| Cash-on-Cash | (12%) | (4.5%) | (1.5%) |
This looks grim, right? Here's why it actually works:
The most common ways contractor garage ROI gets destroyed:
These are benchmarks — not guarantees. Your specific market, construction costs, and tenant pipeline will determine your actual returns. Use the validation checklist and course templates to build your numbers.
15 interactive items to validate your site, financials, and tenant pipeline before you commit.
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