Investing in Commercial Real Estate
When good opportunities present themselves, most everyone would like to be investing in commercial real estate. With this in mind, here are three mistakes you’ll want to avoid making whenever you’re investing in commercial property:
Mistake #1: Not Being An Expert At What You’re Investing In
“The grass is always greener on the other side” applies within commercial real estate, too.
When you have a good knowledge in one type of commercial real estate within one specific use property or geographical area, and you’re presented an opportunity to buy within a market you’re not familiar with, be very careful. The cap rate being offered to you may be higher than what you’re used to. The building may appear to be in a better area, the property may look nicer, newer, and cleaner, but this doesn’t necessarily mean that the property you are considering is a better long-term investment for you.
In these situations, ask yourself the following question: “If this building is such a great investment opportunity, why have all of the local investment experts decided to pass on it?”
Before you decide to purchase the commercial property yourself, you will need to understand why all of these local investment experts have collectively decided to pass on it.
Mistake #2: Not Understanding the Specific Local Trends
Why is it that both people and businesses want to be located within this area? Is the demand to be located within this area something that you can expect to continue on? Are there underlying factors such as zoning changes, new developments or infrastructure changes that could cause this demand to wane over the coming years?
How much the rising cost of energy impact real estate investments within specific geographical areas? Will rising petrol prices cause a shift in demand for both people and businesses to move away from certain geographical areas towards other geographical areas? If so, how will it affect the demand for your property and business.
Mistake #3: Not Doing Your Homework
Within any given commercial real estate acquisition, you need to be doing your homework. Find out if there are any red flags that would indicate potential environmental contamination, review all the details of the contract with your solicitor and review the property’s leases. If there is a business involved with the purchase ensure that full accounts are provided to review with your accountant.
When you’re investing incommercial real estate, you’ll normally be investing a lot of your own money. When you avoid making these kinds of mistakes, you’ll help to ensure that your money will be wisely invested.