Three “Don’t’s” in Commercial Real Estate Investing

(1)   Don’t Rush It! 

If you thought buying your single family home or condo took was a long process, that’s nothing in comparison to a commercial deal.  Everything takes longer.  It takes longer to purchase them, make any necessary renovations and to sell them.  This doesn’t have to be bad thing, but it’s something to be aware of to avoid getting impatient and making foolish errors in the process. Not only do the logistics of buying and selling real estate take longer, but as a new investor it may take you longer to screen deals, make offers and counteroffers.  Be patient with yourself and with the process.

 

(2)  Don’t think you can’t lose money!

This one might seem like a “no-brainer”, this is investing after all, but many investors make the mistake of thinking they can’t lose money, as long as they take care to invest in the right deals.  But what you might not realize is it costs money to find the right deals.  Due diligence can cost upwards of $10,000 in a commercial deal.  Appraisals, inspections and other tests cost more in commercial deals and it could happen that you spend all this money only to discover the deal is bad.  Be prepared to lose money on a deal that doesn’t even happen.

(3)  Don’t be Afraid to GO BIG!

As we discussed above, commercial real estates is more complicated and takes longer than other deals. So, if you’re going to jump through the hoops of putting together a commercial deal, then why not do it big?  While properties with more units are more expensive overall, they are cheaper per unit.  And it is not exponentially harder to manage a larger number of units than a small number of units.  As a new investor though, that 50 unit apartment building may seem more intimidating than that 4 unit condo, but remove the fear and take advantage of economies of scale.

These are only a few things to watch out for when investing in commercial real estate.  But hopefully it will put you on the right track for success and put you in the right mindset for investing.

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