Whether you are purchasing commercial real estate for the first time or you have several successful investments under your belt, this type of deal can go south quickly without preparation and attention to detail. Reviewing the common concerns for commercial property investors can help you avoid expensive errors.
Keep these pitfalls in mind to shield your commercial real estate deal from peril.
Failure to accurately project space needs
If you are buying office space, storefront or a warehouse for your business, make a careful assessment of your square footage needs both a year and a few years from now. Because commercial property is a long-term investment, it makes sense to give your company room to grow.
Lack of diversification
When investing in commercial real estate, diversification is key to protecting your stake in the property. To limit your risk within the real estate market, consider purchasing properties in several geographic areas. You can also diversify the types of property you own. For example, buy a medical office, a warehouse and an apartment building instead of three apartment buildings in the same neighborhood. In the latter scenario, you will lose your investment if those units fail to generate income.
Limited property survey
Commercial real estate brokers may take you through only the building’s best areas during your initial tour. Even when much of the building is sparkling clean after a recent renovation, never make a deal without carefully reviewing every corner of the building. When the property has recently received a remodel, make sure all work is up to code and repaired to last.
Rigid budget and timeline
Commercial investors must prepare for extended timelines and increased budgets. The larger the project, the more likely that challenges will arise that cost money and time to fix. You can significantly mitigate the impact of these setbacks by having a reserve fund. Account for delays and added labor costs in your initial budget to prevent a scramble for resources down the line.