Commercial real estate investment is a lot to handle, especially when buying and managing investment property alone. Many investors that decide to manage a property on their own run into a variety of problems that end up costing them a lot of time and money.
- Look at replacement costs, rental rates, and projected growth before buying a property
- Outsource any management duties that become too burdensome
- When working with partners, create and sign a legal contract covering a business plan for every property involved
- Portfolio diversification only reduces risk for large-scale investors
It can be incredibly difficult to single-handedly manage a commercial real estate investment. Just like with any other venture, success comes with making mistakes and learning how to improve. Here are four common commercial real estate investment mistakes to avoid:
Buying with blinders on – Prematurely buying a property is a common mistake that every new real estate investor makes at least once. Sellers will try enticing investors, for example, with low prices or other benefits, while neglecting to mention something like enormous repair costs. To avoid this scenario, create a detailed report on investment potential before prematurely buying any property
Losing time and money – The administrative details involved in managing a commercial real estate investment are immense. While it often seems financially sound to manage everything alone, outsourcing some management duties can save more time and money in the long run.
A property management company can provide the necessary expertise to find and retain tenants. There are certain things, for example, like managing leasing, collecting rents, and handling evictions all require legal knowledge. Instead of researching the best marketing techniques and studying the law, outsource some of the more out-of-reach tasks.
Not preventing partnership differences – Working with partners can help with the financial and management aspects of commercial property investment. This professional relationship, however, can easily turn sour when something simple like different state tax laws get in the way of business decisions. To avoid these situations, draw up a legal contract that details business plans for each property involved in the partnership.
Disregarding diversification – Many expert real estate investors recommend diversifying your portfolio. Diversification, however, is not worth it on an individual level. Even those investors who are knowledge enough to efficiently spread their investments, diversification only reduces risk for large groups of investors with a massive amount of capital.