Commercial Real Estate Investments: 5 Mistakes and How to Avoid Them

0
401

Did you know that average salaries from commercial real estate investments can range from $70,000 to $124,000? There are never any guarantees, but it’s a lucrative world that’s waiting to be tapped.

Naturally, it’s not as easy as buying a property and launching it. There are some common mistakes that are vital to avoid. Let’s take a look at five of the biggest and how to steer clear.

1) Find Your Niche

Even with commercial real estate, there are various different types of property to choose from, ranging from industrial and retail to office real estate. Different types will offer different real estate investment profits and different levels of maintenance.

Try to find a niche that works with your past experience. You could also talk to other real estate agents and investors before investing in property to see if it’s the area for you.

2) Investment Return Is Not The Only Metric

As with any investment, part of a strong real estate investment strategy is looking at the returns you can expect on your investment. However, this is not the only financial metric to evaluate.

Remember to look at how long it will take to see this ROI. Making $500,000 a year for five years is often more attractive to investors than a bulk payment of $2.5 million at the end of five years.

As well as ROI, remember to calculate your expected recurring cash flow, the potential appreciation in property value in the next few years, and your internal rate of return for a more well-rounded evaluation of your property.

3) Don’t Skip Due Diligence On Commercial Real Estate Investments

A mistake made by many inexperienced commercial real estate investors is skipping on the proper due diligence. While it can seem like a time-saving plan initially, it will create significant problems for you down the line.

Commercial real estate due diligence means reviewing the financial performance of the property, its physical condition, and its location. You can usually hire experts to evaluate this for you if you are unsure.

4) Plan For Ongoing Maintenance and Repairs

As a general rule, commercial landlords should expect to pay roughly 1% of the value of a property in maintenance each year. These numbers must also be taken into consideration when you are looking at how much you will get in return for your investment.

Of course, you won’t be able to account for everything in advance. However, you can and should set aside a certain amount of money to be used for maintenance and repairs so that it doesn’t constantly eat up all of your profits.

5) Never Work Alone

Even if you’ve bought a house – or even a couple of houses – before, investing in commercial real estate is a whole new world. There are roughly 3 million active real estate licensees in the United States, according to the National Association of Realtors.

This means that there is a ton of competition, but also a ton of people to partner up with and ask for advice. However, remember that almost anyone can get a residential real estate license to buy or sell a house.

When you’re looking for tips and guidance, it’s vital to find a genuine expert to turn to and work with. To learn more about finding a niche expert to have your back in the world of real estate, click for more.

Final Thoughts

Looking ahead, these tips will hold you in good stead moving into your career in commercial real estate investments. It’s an exciting sector that can offer big financial rewards and fantastic professional challenges to help you grow.

For more business tips and advice, have a browse through the articles in our business section.