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4 missteps to avoid when investing in commercial real estate

by | Sep 3, 2021 | Real Estate Law

As the U.S. economy appears heading toward recovery, it may or may bring along with it the commercial real estate market. Time will tell, but economists speculate that the commercial real estate market likely will take longer to bounce back as companies reexamine their needs after COVID-19.

However, just in case that the commercial real estate market shows even the slightest signs of recovery, you want to be there. As a prospective investor, you have wanted to dip your toes in this market. This may not be the right time. Then again, it just might be the right time. Now, with a slew of questions that need answering, you begin your research. And you understand that you must be careful to avoid any major missteps.

Unrealistic expectations, not diversifying

Below are a few investment-related mistakes that, sometimes, surface when purchasing and managing commercial real estate properties. Any one of them may prove distracting or disastrous.

  • Diving into the market too quickly with unrealistic expectations: Make sure to thoroughly research any prospective investment property. Carefully compare candidate investment properties. Do not merely focus on a sole property. Work with an asset manager who has knowledge of the properties and understands the investment potential.
  • Neglecting to diversify your portfolio: Just like a mutual fund portfolio, you want to have different types of investments to reduce risk. The commercial real estate market is filled with risk.
  • Failing the grasp oversight responsibilities: You must understand the basics that include problem-solving, maintenance costs and budget balancing. A property manager becomes a solid ally in these situations but make sure you can afford the cost and that you find a company that already manages a diverse property portfolio.
  • Not foreseeing the potential for a partnership conflict: You likely will have some investment partners, so some disagreements are possible. However, you do not want these disagreements to damage the alliance. Make sure to have written contracts that spell out the responsibilities of each partner.

Investing in commercial real estate property is not simply about finances. You must gain certain knowledge while anticipating what could happen. Prepare, understand and secure the right allies who may help you avoid and overcome any mistakes along the way.