If you are looking for property for your new or first business, certain decisions can hind your progress. Avoid these mistakes when buying commercial property.
Did you know the commercial real estate market is valued at around $16 trillion?
If you want a slice of the pie, then you might have considered investing in real estate. There are plenty of things to consider when investing in commercial real estate, which is why many beginners make the same common mistakes.
Read on to learn about these mistakes to avoid when purchasing a commercial property.
Table of Contents
- 1 No Knowledge of the Market
- 2 Buying During the Wrong Cycle
- 3 Lack of Knowledge of Rents and Property Values
- 4 Falling In Love with the Property
- 5 Not Familiar With the Commercial Property Type
- 6 Poor Negotiation Skills
- 7 Failure to Think of Operating Expenses
- 8 Too Many Repairs
- 9 Not Thinking of Tenants’ Leases
- 10 Not Thinking Long-Term
No Knowledge of the Market
One of the biggest mistakes when buying a commercial property is not having enough knowledge of the market. While many believe buying commercial real estate is a great investment, they could fail to satisfy the demand.
Even if they decide to invest in different types of commercial properties to diversify their portfolios, some properties are better investments than others.
Before you make you start looking for a commercial property for your business or real estate portfolio, make sure you familiarize yourself with the market.
You don’t want to wait many years before your property becomes a trend; you should try to invest in a property that will hold its value.
Buying During the Wrong Cycle
A lot of people are familiar with the terms “buyer’s market” or “seller’s market.” When in the process of investing in commercial property, you need to keep these terms in mind.
If you buy during the wrong cycle (seller’s market), you could end up paying more for the property you wish to buy. As many people know, the real estate market doesn’t remain the same for long.
You will get the best deal for a commercial property if you wait to buy during the right cycle (buyer’s market).
Lack of Knowledge of Rents and Property Values
A big mistake commercial real estate buyers make is not knowing about rent trends and property values.
If you decide to invest in a commercial property and your goal is to rent it out, you need to be aware of how much you will get for rent. If the cost of your mortgage will be higher than what you will collect for rent, you will not make money on this investment.
Before you make an offer on any commercial property, you need to decide if you’re making a high interest rate investment.
It might take more time than you anticipated, but learning about rent prices and property values will pay off in the long run.
Falling In Love with the Property
Another mistake commercial property buyers make is falling in love with the property.
While it’s more acceptable to fall in love with your dream home, you don’t plan on living at your commercial property. Rather than falling in love with the commercial property, you need to fall in love with the numbers.
Even if you’re impressed with the property’s location and condition, you need to pass when the numbers indicate a poor investment.
While you don’t have to purchase a property you hate based on numbers, you can find a happy medium. With a little time and patience, you can find a property that fits your vision, and that is a great investment.
Not Familiar With the Commercial Property Type
Operating a warehouse is a lot different than running an office building. It’s a mistake thinking that all commercial properties are equally operated.
If you want to buy a different commercial property type to diversify your portfolio, make sure you take the time to familiarize yourself with the type of property.
It’s important you talk to experts in the industry for ways to diversify your portfolio without hurting your investment. It’s important to talk to experts in the industry to diversify your portfolio without hurting your investment.
Poor Negotiation Skills
If you’re new to buying commercial properties, chances are you’re not experienced when it comes to investing. Having excellent negotiating skills is more than just about negotiating the best price.
To get a better understanding of what you’re getting, have a chat with the seller. Ask the seller the reason why they’re selling the property. Based on their answer, you should get a background on the property and the seller.
Having a better grasp of the property you want to buy will help you negotiate a better price with the seller.
Failure to Think of Operating Expenses
Not only will you have to pay for the mortgage on a commercial property, but you will also have to pay for operating expenses. The last thing you want is to learn how much it will take to operate the property the moment you’re about to close the sale.
Before you present an offer to the seller, ask them for a detailed report of how much it costs to operate the property.
Once you have the report, you can add the operating costs and decide if you can afford to maintain the property.
Too Many Repairs
Although there’s nothing wrong with a fixer-upper if you get it at the right price, you also don’t want to get a property that will cost you thousands of dollars in repairs.
If you’re new to commercial property investing, you might not have the funds to complete the project. Make a list of repairs and upgrades you will have to make to the property.
Don’t be afraid of walking away if the property will cost a lot more than anticipated to repair.
Not Thinking of Tenants’ Leases
If you plan on having tenants in your commercial property, you will need to learn a thing or two about leasing agreements. Will you do short-term or long-term leases? How will you fill vacancies?
You can always hire a commercial management company to help you take care of handling lease agreements.
Not Thinking Long-Term
Although no one can predict the future, you also need to think long-term. Think about what you plan to accomplish with your commercial property in the future.
Keeping the future in mind will help you in your quest to find the right commercial property.
Are You Ready to Invest in a Commercial Property?
Now that you know about these mistakes to avoid when buying a commercial property, you’re ready to take the next step.
Don’t forget to learn about property values, learn about the market, and work on your negotiation skills.
If you enjoyed these tips and would like to read similar ones, check out the rest of our blog.