How to Avoid These 5 Commercial Real Estates Mistakes
by Jenny Spurr – Connect4Commerce Contributor
Buying commercial property enables you to expand the operations of your company and increase your earning potential. It can be a smart investment, but without proper planning, advice and preparation, a bad real estate transaction can significantly impact your bottom line and your portfolio. Many entrepreneurs make mistakes that cost them time, resources and money. We’ve put together these small business tips to help you avoid 5 common commercial real estate mistakes.
Mistakes to Avoid When Buying Commercial Property
Mistake #1: Diversifying Too Quickly
It’s easy to get distracted by the many opportunities to buy commercial real estate. However, becoming a successful real estate investor means focusing on one type of commercial property.
Take some time to learn the six most common kinds of commercial real estate, and decide which one is right for you and your long-term goals. Diversifying your portfolio is important, but you need to dial in on one type of investment first.
Mistake #2: Not Having an Investment Strategy
Having a solid investment strategy is essential when you buy commercial real estate. Like finding the right commercial property, it’s important to find the strategy that fits your needs. There are several different investment strategies to choose from, including:
- Land banking: Buying large pieces of land in the path of future development with the hope they will grow in value as the development approaches.
- Fix and flip: Just like it sounds, this is buying commercial property, making necessary repairs and reselling it at a higher value.
- Owner-occupied: Purchasing a piece of real estate from which you plan to run your business.
- Passive investing: Supporting a group or individual that negotiates the deal so you can receive passive income and equity from the commercial property.
Mistake #3: Failing to do your due diligence
Due diligence is necessary before closing any commercial real estate deals. This deep dive into the property can help you uncover any potential issues and make fully informed decisions. Consider all aspects of the property, including its title and permits, zoning [1] rules and current tenants.
Tenants can make or break a deal, especially if your property only relies on one to provide a source of revenue. If they leave, it can take longer than expected to replace them and your cash flow can run dry. Play it safe when you buy commercial real estate by choosing a building with a good foundation and long-standing tenants.
Mistake #4: Flubbing the sales agreement
Sealing the deal takes more than just negotiating the best price. Take some time to get to know the seller and their motivations for selling the property. This will help you build trust and protect your investment. Consider how you plan to use the property and make sure those uses are allowed in the area and included in the sales agreement.
Follow these steps to close your commercial real estate deal
Mistake #5: Doing everything yourself
When buying commercial property, surround yourself with experts, including a real estate professional who specializes in your chosen property type. Before you sign on the dotted line, consult an accountant who can help you determine your budget and uncover any hidden costs or tax implications.
If renovations or upgrades are needed (for example, building a commercial kitchen that meets food-industry standards), make sure you choose a contractor with expertise in your industry. Don’t make the mistake of going it alone when you buy commercial real estate.
Connect4Commerce offers entrepreneurs and small business owners across the country a convenient and comprehensive place to connect, exchange goods and services, and advance their businesses. Be sure to check out further articles in our Small Business News blog for more small business tips. Also, find professionals on our site that can help you build your business. when you’re ready to find the perfect space for your business you can find the commercial listings on our website.