Successful commercial real estate investment requires strong business acumen. In Texas especially, to triumph in the commercial real estate market, an investor needs to be prepared. Just like any worthwhile enterprise, investing in commercial real estate isn’t always easy, and in order to succeed a savvy investor should know not only what works, but also what doesn’t.
There are a few common mistakes that a commercial real estate investor is wise to avoid. By dodging these industry pitfalls, one can better position themselves for success in a market that’s not always kind to missteps.
Buying without due diligence
A lot goes into whether or not a property will flourish. It’s prudent to measure aspects like projected growth, rental rates and repair costs when evaluating a property. It’s also beneficial to survey surrounding competition, as well as whether or not the area has sustainable growth. Making an informed decision is vital to getting the most out of a potential investment.
A lack of foresight in partnership differences
For investors, forming partnerships can sometimes lead to greater commercial real estate acquisitions. Going into such a relationship blindly, however, can have disastrous consequences. It’s smart for partners to create a legal contract for every property that covers their business plan. This can account for the division of responsibilities, as well as exit routes in the event of death, bankruptcy or divorce. Having such an agreement in place can potentially diffuse disputes down the road.
Ignoring the strategy of diversification
Though commercial real estate presents different challenges than other forms of investment, not putting all of one’s eggs in one basket is still a good rule of thumb. Diversification can go a long way toward mitigating some the risk inherent to commercial real estate investment. This can be done by purchasing different types of properties, as well as investing in different geographic locations.
Failure to delegate
Investing in a commercial property is one thing, managing it is another. In order to alleviate the burden of administrative details and oversight, hiring an experienced property manager can be a shrewd maneuver. For investors, taking on the task of finding tenants, collecting rents or carrying out evictions can be a waste of time and money. By delegating tasks pertaining to day-to-day business operations, an investor can free up time for more pressing matters.
Source: Forbes, “Avoid These Four Common Commercial Real Estate Investing Mistakes”, Michael Episcope, Jan. 5, 2018