Top 5 Mistakes of Commercial Real Estate Investors

1. Ignoring Local Market Conditions - The local market is one of the two main considerations that you need to make before starting a commercial real estate project. After all, a good property doesn’t do much good in a poor market and visa-versa. It is important to analyze demographics and trends in the area in which you are building.
2. Ignoring Property Due Diligence - The property is the second main consideration that you need to make when evaluating a commercial real estate investment. Properties should be thoroughly checked before investment. In particular, things like building systems, environmental matters and structural components should all be carefully checked.
3. Mathematical Errors - Real estate investment often comes down to simple mathematics and it is important to know that you are going to make a profit before starting. Be sure to get accurate estimates of costs, accurate forecasts of demands, and an accurate picture of how much you can charge for rents. Any mistakes in these assumptions can lead to big problems down the road.
4. Overleveraged Financing - Borrowing too much money can be a death sentence in commercial real estate. After all, a small change in the market can force large changes in net operating income. Debt service payments that are too high combined with lower net operating income will result in an inability to pay. Obviously, debt can be a great way to increase return on investment, but used improperly it can result in a quicker demise.
5. Exit Strategy Problems - Every real estate investor must have an exit strategy in place to make sure that they are able to sell when the time is right. As a result, it is important to know how the property will be managed, what improvements are needed and their cost, how much money is needed to be made, and how long it will take. These questions are important for you to know and important for any potential buyer to know as well.

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