When purchasing commercial real estate, an investor can get caught up in the excitement of the deal and neglect certain basic rules of investing. Here are some common mistakes to avoid:
Not doing proper due diligence – Don’t cut corners. It makes sense to spend up front on due diligence rather than paying for costly mistakes down the road.
Ignoring market conditions – It is crucial to understand the market dynamics/conditions in the area where you are buying, both on a macro and micro level.
Borrowing too much – It’s tempting to get excited about leverage and cheap money when it’s available, but borrowing more than you should can lead to disaster in the long or short term. Real estate is cyclical, and the events of the Great Recession of 2008-2009 point to what can happen when investors get caught up in the lending frenzy.
Having a bad partner – Properties can have issues, but having a bad investment partner can be even worse for your commercial real estate deal. Just like you do on the property, do due diligence on your partner(s) as well.
Not having good exit strategies – Be sure that you have multiple strategies for exiting (disposition of the property) for a variety of different situations.
Overreaching – Don’t take risks that your company cannot handle. Don’t do a deal just for the sake of the deal. There will always be another one.
Most investors have made one or more of these mistakes at one time or another. What’s important is to learn from mistakes (whether yours or others’) to maximize your success as a real estate investor.