4 Commercial Real Estate Mistakes New Investors Make
Investing in real estate can be a fantastic way to make money, whether it is as a day job or a secondary source of income. New investors in the commercial real estate industry are often enthusiastic and want to get started right away. However, people without experience need to learn about the industry and avoid making some of the common mistakes.
1. Not Creating a Business Plan
A solid business plan can be useful throughout the process of establishing and running a commercial real estate company. The business plan should contain information regarding realistic financial projections, the marketing strategy and the daily operations. Without a business plan, real estate investors may forget to take important factors into account. Most lenders also request a copy of the business plan before approving any loans. Failure to have or provide a plan can look unprofessional and result in a loan denial.
2. Neglecting the Research Process
Jumping into the industry without a thorough understanding of the terminology, market, property management and types of loans can result in serious errors. Purchasing a property with the intent to lease space to tenants requires knowledge of the legal ramifications of the decision. The property must meet local, state and federal requirements, and it must be properly insured and maintained. Even if an investor plans to hire a property manager, the investors should understand the regulations to ensure they are properly enforced.
3. Failing To Negotiate
Investors should be prepared to negotiate with many types of people. The property owner selling the desirable real estate will likely be open to negotiating the price of the property and any closing costs. Tenants may try to negotiate the price of the rent, fees or deposits. When looking for a loan, investors should negotiate with lenders to ensure the best terms are obtained.
4. Inadequate Understanding of Legal Terms
While negotiating with lenders is an important part of the process, it is vital that investors understand the terms and conditions of each loan. What appears to be an excellent bargain during the discussion phase may turn out to be a nightmare if the terms and conditions are not properly examined. Therefore, investors should read the fine print carefully and approach a lawyer with any questions before signing any paperwork.
Investing in commercial real estate can be a lucrative and enjoyable endeavor. By conducting research and gaining an understanding of the industry, investors can prepare to meet challenges and increase their chances of success.