Avoid These Common Mistakes When Investing in Commercial Real Estate
Investing in commercial real estate is a big industry with an estimated 2.2 million investors. Commercial real estate refers to properties that are purchased and then leased for the purposes of business and retail use. This industry includes properties of the following types: office, retail, industrial, multi-family, and special purpose.
What is Important to Know About Investing in Commercial Real Estate?
To become successful in commercial real estate investing, it is important to know how commercial real estate is different from residential real estate, analyze comparable prices, and research future developments. This investing category requires knowledge and use of key success metrics including net operating income, cap rate, and cash on cash to evaluate the rate of return. And it is critical to get funding for this type of investing. Sources include SBA loans, conventional loans, commercial bridge loans, hard money loans, and conduit loans.
What are the Challenges of Investing in Commercial Real Estate?
Understanding the challenges of commercial real estate investing will help investors avoid mistakes. Here are some of the challenges:
- Market volatility
- Limited inventory
- Increased liability
- Income uncertainty
- Deal underwriting
- Low occupancy rates and potential evictions of tenants
- Hyper Inflation on assets
Avoid These Common Mistakes in Commercial Real Estate Investing
Common mistakes include:
- Choosing the wrong property type because some types perform better than others.
- Overlooking or shortcutting due diligence before entering a contract and taking possession of a property.
- Not knowing all the numbers. This can lead to underestimating expenses or overestimating returns. Good financial research is required.
- Poor tax planning including not preparing for potential tax liabilities.
- Overextending yourself or your funds.
- Underestimating repair or renovation costs.
- Trying to do it all yourself.
Seek Expert Financial Assistance
Contact Summit Commercial Capital, based in Broken Arrow, OK to get the right business loans to reach your business goals. We offer a comprehensive portfolio of business loans so we can find the right financial solutions for your business opportunities and take your business to new heights.