How to Ruin a Commercial Real Estate Deal

Real estate investors make mistakes, too. Here’s a few that make the top of our list.

Sometimes commercial real estate deals fall through. While it’s usually combination of reasons and excuses attributed to both borrower and lender, recently with the market exploding again we’ve seen a rookie real estate investors make the same mistakes—over and over. We’ve boiled the mishaps into a few categories that, when eliminated from investor’s methods, could drastically improve their success rate in commercial real estate deals. Let’s get into it.

Ignore Local Market Conditions

Do your due diligence—and then some. With great detail, check into both the local market conditions and the property. A bad property in a great market can be an incredible investment. Likewise, a great property in a poor market can leave you broke. How do you know the difference, really? To determine which properties types are in demand and where opportunity lies, analyze the demographic trends of population growth, income, and employment in the local market. Dropping money into an area with declining demographic trends is destined for disaster—so dig into your market. It’s also important to consider that gentrification can stall. Today’s trending neighborhood can be tomorrow’s slums.

Poorly Research the Property

Now that you’re confident with the market it’s time to go deeper into the property itself. Consider how the property was used, the wear-and-tear, and any potential environmental hazards or liability issues, such as lead paint or asbestos. From there look into potential zoning roadblocks. Can you actually use this space for what you intended? Are there any building code or land use limitations? Knowledge of contract law, insurance, accounting, and tax law is also critical to ensure a successful investment.

Seem like a lot to handle yourself? That’s because nobody goes it alone—successful commercial real estate investors surround themselves with experts in their field. Here’s a few trades you may consider contacting:

  • Lawyer: Necessary to complete the transaction. Can negotiate on your behalf.
  • Accountant: Necessary to figure out what you can afford and analyze the tax and operating budget benefits.
  • Commercial broker: Necessary to identify potential properties you can afford.
  • Mortgage broker: Necessary to help organize and determine financing options.
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