by Arti Chaudhary
In a world where things move so fast, it’s not uncommon that we react quickly and sometimes make rash decisions. Though generally, these miscalculated steps don’t cost much, when it comes to investment decisions, such adventures may cost dearly.
Real Estate, especially commercial real estate, is one such segment which offers great investment opportunities. But, here too, caution is very much required. Investing in commercial property brings lots of financial rewards but at the same time many risks.
To keep yourself safe from these risks it is important to learn from other’s experiences and know which commercial real estate mistakes you should steer clear of. The best way to avoid these mistakes is to have a keen understanding of your subject matter.
Here are the top 5 mistakes you should avoid while investing in commercial real estate:
Inadequate Due Diligence
It is the most common mistake done by investors. Whether the due diligence is on the property itself or understanding the local market it is very much imperative. For property due diligence you should examine property conditions and systems, structural building components, insurance, accounting, finance, contract and tax laws, and environmental matters.
Not being over-leveraged
Borrowing money while buying a property is good and common but too much can be disastrous. Especially when we do not have any solid back-up plan. Keep in mind that the proper use of leverage is a ‘one-word’ deal structure and investment strategy well-thought-out and solidly emplaced. It is also important to have additional cash reserved for the things which are unseen and unplanned. Having sufficient money reserved helps the better prepare investor for unexpected expenses.
Importance of Gross Income
It is one of the most typical mistakes done by the investors while buying the property, after all the expenses, they look towards the gross income instead of net income. Some brokers and sellers advertise properties having certain returns. They will do whatever it takes to sell the property but being an investor it is important for you to check whether the returns are genuine or projected.
No Exit Strategy
Having a strong plan including ways to exit the investment deals is a sign of season investor. The exit strategy should include but not be limited to how long will it take? How much money will be made or lost? And how to access the profits?
Failing to hire the right professionals
Hiring a team of local professionals like commercial real estate broker, lender, and an attorney can go a long way to ensure a more safe and rewarding investment. Under the guidance of these professionals, you will get an idea of customs and local practices and help you to determine the most important items to review during due diligence.
So, try not to do mistakes from your side and keep a vigilant eye on every little thing with an investment in commercial real estate. All the best!