Anyone who wants to invest in real estate has high hopes that one day they will have the capital and the knowledge they need to invest in commercial real estate. When you are new to any type of investing, you are bound to make mistakes. But when it comes to commercial real estate, one mistake that may seem minor to you could potentially lose you thousands or even millions of dollars. Even very experienced commercial real estate investors make mistakes from time to time. Review some of the most common mistakes investors are making today and do your best to prevent making these mistakes when you search for properties to add to your investment portfolio.
Buying Commercial Real Estate to Flip
Just because flipping real estate is very popular today does not mean it is wise. When you flip a property, you generally buy a property that needs to be renovated quickly and then turned for a profit. While flipping can be a very profitable move in the residential real estate sector, it can be one of the biggest mistakes you can make as a commercial investor. The entire reason why you buy a commercial property is to earn long-term profits. If you buy a property that needs to be remodeled, you should focus on remodeling the property quickly so that you can find the perfect commercial tenant. If you sell the property, you are missing out on rental income and the opportunity for capital gains long-term.
The Dangers of Being Unrealistic with Pricing
You have to take pricing very seriously whenever you make a real estate investment. Because the commercial market is a very complex one, you are going to need to take time to review trends in the area where you are investing to see just how much you can expect to earn in rental income. If you think that you can afford more once you earn a rental income, you may take out a mortgage that you simply cannot cover. You also need to have a contractor to provide you with an estimate so that you know how much your renovations will cost. It is easy to assume that your renovations will not cost your entire budget. Assumptions are mistakes you simply cannot make when you are talking about your investment portfolio.
Buying Too Upscale
When you buy upscale, you have to have the money to maintain the property and to market it to upscale tenants. Not everyone is prepared to market an upscale property if they have not dealt with this type of property in the past.
Listening to Experts Instead of the Bank
Real estate ‘experts’ or people who want to partner with you in the venture might insist that the property is the perfect opportunity. The bank might tell you something else when they review your assets, your income, and the value of the property. You should never ignore the fact that the bank does not believe that you can afford a commercial mortgage. If you try to come up with the money another way and you default on your private loans, you could be in for a lawsuit or worse.
Real estate is a numbers game and you have to be prepared to do the math and the research before you invest. Consider your gross revenue minus the operating expenses and you can determine if the net operating income is going to be enough to earn you profits. Avoid making the mistakes some investors make and always keep the risks in mind whenever you are adding to your portfolio.
If you are making your first foray into the real estate investment property market, then make sure you get some sound advice from people who have been there and done that. LWP Property Group are experts in investment advice as well as information for first home buyers.