5 Biggest Mistakes Made in Commercial Real Estate Investing
Many entrepreneurs find investing in real estate to be financially worthwhile, and commercial investing even more rewarding. However, as with many types of investments, there are success stories as well as those that fail. To avoid getting caught in a commercial investment trap, here are five pieces of advice about the biggest mistakes made in commercial real estate investing.
Many commercial investors buy properties to rent them out as long-term cash income properties. In order for this type of venture to be a success, cash flow must be securely allocated regarding each property maintained. In other words, it is essential to hold money aside for maintenance, insurance, taxes, and mortgage expenses for each property. When money becomes tight, those holdings can become a liability.
For many years, balloon payments have been the common type of endings to a commercial real estate loan, and balloon mortgages often have high-risk problems for the property owner that comes all too soon. While making interest-only payments for many years may seem like a good deal, refinancing or paying off a loan that has grown over the course of its life can be very costly.
Real estate investors can make the mistake of looking at gross income after expenses instead of net income. It is easy to become excited at the thought of a new property and the returns it can have, but many times, those returns are projected, and the actual expenses severely diminish the returns. Problems can include market fluctuation, building improvements, and raising taxes.
No matter what type of commercial property you have, a good property manager can help carry the asset to new heights or bring your property to ruin. Finding a trusted administrator can mitigate risk, free your time, reduce your stress, and increase your profit margin on almost any property. A manager can find tenants, collect rents, settle disputes, and schedule regular building maintenance.
Although a broker can advise you on a property purchase, do not forget to do your own due diligence. Make sure you have trusted professionals verify pertinent information, zoning laws, and property stats to ensure you are getting what you believe you are purchasing.
For those that are prudent and cautious, commercial real estate investing can be a financial breakthrough. It is important to know what you are purchasing and be careful not to get pressured into a deal by anyone, no matter how good the transaction may seem.