Costly mistakes made by commercial real estate investors

by | Jul 20, 2021 | Real Estate

In the days of COVID-19, the commercial real estate market has been considered an “iffy” investment. However, the current investment environment also means potential opportunities. The commercial real estate market is bound to reemerge. But when?

That is difficult to say as many office buildings stand nearly empty as many employees worked from home. Still, you want to be prepared once the time is right and you fully commit to a commercial real estate investment. Research, lining up financing and forming potential business alliances are all on your to-do list. But so is avoiding any mistakes. Even the slightest misstep may take you back to start.

Lack of diversification

Here are some of the mistakes that can surface when investing in commercial real estate:

  • Prematurely entering the market and having impractical ideas: Make sure to “kick the tires” of any prospective investment property. It is not wise to focus on a single property or become enamored with the first one you see. Compare properties, and it is a wise idea to team with an asset manager who knows the properties and their potential.
  • Failing to diversify: “Don’t put all your eggs in one basket” is an aphorism that applies to many things, including commercial real estate investment. Diversify your investments, looking at different types of properties and even in different regions.
  • Failing to anticipate and understand management responsibilities: Problems and issues will surface. Maintenance costs exist, and understanding how to balance a budget is essential, too. Retaining a property manager is a good idea, but make sure to find one with experience overseeing a disparate portfolio.
  • Not anticipating conflict with partners: An investment team means different people, personalities and even visions. Conflict, sometimes, surfaces, and disagreements may splinter an alliance. Have contracts in place that describe the duties of each investment partner.

Careful consideration is necessary when pursuing commercial property investments. There is so much more to understand than financing. Learning the hidden and not-so-hidden details may prevent you from making certain mistakes.