Commercial real estate investments ensure a worthwhile experience, with the promise of bigger returns, provided you are careful in your dealings. Most first-time investors I have seen get so blinded by the promise of lucrative returns that they lose sight of the risks. It’s essential to assess multiple factors before investing in commercial property because it does not take much for a great deal to turn into a financial pitfall. But, no worries! In this blog, I will explain the common mistakes to avoid in a commercial real estate investment. For more details you can consult our experts in commercial real estate accounting.

Lack of Proper Research

Research is the key to a good investment. A commercial property is your asset that has the potential to bring you steady returns. But first, you need to do the following:

– Research the best locations

– Compare the prevailing property rates

– Assess the property value

– Check the amenities, facilities nearby, average rental, etc.

– Assess property market conditions

You need proper information about the commercial property before investing. Ignorance is the leading cause of assets turning into financial liabilities. Also, it makes it easier for brokers and agents to deceive you.

Not Preparing a Budget

How much are you willing to invest? It’s wise to decide on a budget before you even start looking at properties. I strongly advise my clients not to go overboard and exceed the budget, no matter how lucrative the offer seems. When determining the budget you should consider additional costs, like:

– required down payment

– property taxes

– insurance

– furnishing costs

If the property needs refurbishment, that will cost you extra. Factor in everything before you create a budget for the investment. Also, I will suggest that you should always keep a financial buffer, in case.

Lack of Due Diligence

Never invest in commercial property without analyzing the market trends. First-time investors often rely on word of mouth and market hype, which can be catastrophic. I would suggest, that you conduct proper research, studying the market data and trends. It will prevent you from buying the wrong property. Start by comparing the following:

– average rents

– vacancy rates

– flood areas

– land zoning ordinances

– access to proper transportation

– future infrastructural developments in the area

If you need any help, connect with my team of advisors. We will help you in whatever way we can.

Not Considering Operational Expenses

Buying a commercial property is only the first half of your investment. What comes next is the cost of operating it. You need to factor in that as well when deciding the budget. Your operation costs cannot exceed your projected profit margin. Here are a few cost factors to keep in mind:

– property maintenance

– pest control fees

– marketing and advertising fees

– insurance

– HOA fees

– trash removal fees

– utilities

These operational expenses will vary depending on the kind of property.

Not Doing Compliance Review

It is essential to conduct an independent investigation to make sure that the property and improvements align with federal, state, and local regulations. You should get a professional to review the building and zoning permits, and building code certifications to avoid legal issues in the future.

Concluding Note

Commercial real estate investing is a rewarding venture, but it’s not without its challenges. In my years handling commercial real estate accounting I have seen even the seasoned investors making bad deals in hopes of grand returns. Learning from these common mistakes can help you become a more successful and resilient investor.