When compared to different types of investments, commercial real estate has a reputation for being a good investment choice that typically offers more extensive returns, even as compared to residential real estate. Commercial real estate is a tangible asset that adds diversity to any investment portfolio while producing stable and consistent cash flow.

However, there are many traps that investors could fall into if they’re new to the market and don’t have sound guidance. Some of these can result in costly penalties and even the eventual closure of the company. Here are the eight most common problems independent commercial realtor runs into when they purchase and manage properties, along with advice on how to prevent them.

1. Lack of a Clear Investment Strategy

A clear investment plan must be in place before you purchase any commercial real estate. This entails putting your investment objectives on paper, comprehending the level of risk you might be incurring, and thoroughly comprehending your local real estate market. Having a general timeline for making a purchase is also helpful.

2. Insufficient Market Research and Analysis

Globally, many real estate investors do not conduct market research to identify the industry categories they plan to enter. For making investing decisions, they use their own intuition or simply listen to the insights of their peers—who may or may not be experts. These practices frequently lead to entering saturated markets and losing enormous investments.

You should learn more about changes in the market as a whole and the current demand for commercial space and pricing. From there, you can get a better idea of how the prices in your area compare to market averages and current real estate marketing trends.

3. Ignoring Location Factors

As you may have already heard, location can make or break a real estate deal. A commercial property’s location offers key advantages, and in order to maximize these advantages, some might prefer to invest in commercial properties that are more expensive yet located in prime areas.

On the other hand, not paying enough attention to location may limit the renters’ access to consumers and staff. Plus, this can impact minimal capital gains and returns on investments, which would make the property unsuitable for loan approval. Also, a bad location limits the amount of everyday foot traffic in the neighborhood and makes it harder to access the property.

4. Underestimating the Importance of Due Diligence

Conducting some diligent research into the property is essential if you want to prevent any unpleasant surprises. Looking into a commercial asset usually entails a close examination of the legal elements, the property’s state, location, and zoning regulations, as well as analyzing local market circumstances.

Performing a physical inspection of the property, reviewing current lease agreements, researching the tenant’s business and industry in-depth, reviewing financial accounts, and having the building inspected for pests, and other issues are also part of this process.

5. Overlooking Property Inspection

Accessing commercial inspections, and loans of various sizes and scopes, along with conducting commercial property inspections, are crucial steps in closing a sale.

Therefore, hiring a certified commercial building inspector to evaluate a property’s condition is essential. By drawing attention to a property’s concealed structural, maintenance, mechanical, and hazardous flaws, this phase protects buyers, investors, and lenders. In other words, by alerting you to potentially costly and unsafe maintenance and repairs that will need to be addressed, a commercial property inspection safeguards your investment.

6. Failure to Account for Hidden Costs and Expenses

Miscalculating the overall cost of a real estate deal is one of the most frequent errors made by investors and landlords. On paper, a deal could appear to be very appealing, but if all the additional fees and charges aren’t considered, it could end badly.

When purchasing any commercial space or investment property, there are several charges and expenses that you will need to take into account.

  • The Price Paid for the Property
  • Stamp Duty
  • Solicitor’s Fees
  • Renovation and Refurbishment
  • Mortgage Interest Rates
  • Service and Maintenance Charges
  • Ground rent charge
  • Management Agent Fees

7. Not Having a Contingency Plan

Without at least a few thoughtfully drafted contingency plans, no residential or commercial real estate contract is complete. A contract with provisions for contingencies is, at the very least, a crucial safety measure for both the buyer and the seller. Both purchasers and sellers of commercial real estate can significantly reduce unnecessary risk with the correct contingencies included in the contract.

The following contingencies reflect some of the most typical safety precautions investors should apply in their own contracts if they are unsure of where to start:

  • Ability to secure financing
  • Satisfactory title
  • Property survey
  • Inspection contingency
  • Review leases
  • Property income and expenses
  • Land use approval
  • Environmental conditions

8. Lack of Expert Guidance and Professional Help

Working with a commercial real estate expert like Allen Mayer is essential to navigating the process and avoiding pitfalls. They will guide you, and determine your goals, budget, and profit potential. Consulting a commercial real estate attorney, accountant, and construction specialist if needed is also advisable. Knowing the right people, especially an experienced agent like Allen Mayer, is crucial for success in commercial real estate.