How to Avoid Four Common Commercial Real Estate Investing Mistakes?
It is not easy to decide to invest in real estate, especially with how risky such a venture may seem recently. Still, it remains a very tempting medium of generating income, so long as you know how to avoid four common commercial real estate investing mistakes.
One of the most common commercial real estate investing mistakes you should avoid at all costs is failing to grasp just how much you will have to spend. Many people investing for the first time just focus on the property’s price. And, to an extent, this is fine. After all, that is the very basis of the whole endeavor. But, on top of this, you have many other expenses:
- Paying realtors
- Touching up the property
- The necessary renovation to make the property livable in the first place
- The cost of furnishing a property
And these are just the most basic expenses you definitely can’t avoid! You’d also need to pay a moving company to transport old and new furniture, cleaners, home inspectors, etc. Now, there are admittedly some things you can probably do on your own and avoid having to pay. But there is a hard limit on how much DIY you can do yourself without professional skills and knowledge. Not to mention that once you get into a serious investment, you would not only have a single property to worry about. Therefore, it is fair to say that there are many factors to consider before investing in property, not just the obvious ones.
A common pitfall best avoided is assuming you can generate profits and making reckless assumptions about how significant your earnings will be. Even if you do your due diligence and thoroughly research expected returns for the area you’ve decided to purchase real estate in, things can go wrong. Preferences shift, different city areas become more appealing, and not to forget, pandemics or global economies. All of these, from minor problems to much larger ones, impact your profits. And going all-in on your investment just to get suddenly stone-walled would result in severe losses on your end.
Another aspect of the reckless behavior of this particular investment mistake is assuming you will start turning a profit immediately. You see, even in the best-case scenarios, it will take some time for you to cash in on your investment. If you are buying property to rent, you will take time to find a tenant. If you plan to resell the property once it’s been improved, you will need to find a satisfying buyer. All of which is to say: Never think you are guaranteed to get your money back quickly. In other words, there are things to know before becoming a commercial landlord! This is a common commercial real estate investing mistake that ruins many people’s lives.
Failing to do research
We mentioned doing research and how things can go wrong even when you’ve done it. However, you will suffer losses if you neglect researching the best housing market to invest in. This only makes sense, after all: if you want to become a landlord, you cannot pick an unpopular area people are unwilling to rent homes. You need to target the best real estate for which renters would be willing to pay a little extra. This means you must ensure that the area’s amenities are top tier. For example, having easy access to commercial storage providers to secure a facility for your needs is a major plus. Another example is easy access to public transportation hubs. Especially if you plan to rent out homes to college students or similar.
This brings us to another point of why research is necessary: picking the best city to invest in. While choosing the right neighborhood is essential, your plans will fall through from the start if you select a town or city no one is interested in. Quickly-growing cities with large population growth rates are the best possible choice for real estate investors. Whether you want to rent out property or resell it, you will find a steady stream of interest there. College towns are also a fantastic choice, though more so for landlords than those focused on a property resale.
Trying to do too much too quickly
The final of the common commercial real estate investing mistakes is overreaching. The first way to do this is to invest in too many properties at the same time. This is one of our previous points about underestimating costs. People investing in too many properties tend to stretch their resources too thin and achieve subpar results with all of them. Either due to lacking money to complete everything or because they can’t manage so much property at once.
This brings us to the second way to fail when overreaching: being unable to manage all the real estate efficiently. It is better to find a reliable real estate manager if you are not sure you can handle even a single property well. They can alleviate a lot of pressure, make simple decisions on your behalf, and even help facilitate the management of tenants and the upkeep of rental properties under you. This way, you do not need to worry about your business acumen dragging the efficiency of your investment venture down.
Now that you know how to avoid four common commercial real estate investing mistakes, you should be able to navigate the challenge of investing in properties much more manageable. Of course, keep in mind that every form of investment carries risk, no matter how prepared you are. So, make sure you make a move only when you are absolutely certain your preparations are sufficient for you to absorb some losses before your investments come to fruition.