MISTAKE #1: DON’T OVERPAY
It’s not unusual for a commercial real estate investor that is new to commercial real estate to overpay for a commercial income property. This is usually due to a misunderstanding of what the key metrics are in determining whether or not a particular property will be profitable.
For example, many investors assume that CAP rate is the best method of assessing a commercial income property’s profit potential. In fact, there are numerous factors that can be assessed that impact heavily on net operating profit – even for triple net properties, which are viewed as sure-fire winners by most investors.
MISTAKE #2: DO CONSIDER THE AGE OF THE PROPERTY
Don’t rush to purchase old properties because of the great price. Older commercial income properties means a greater chance that major repairs will be needed, eating away at your profit.
MISTAKE #3: DON’T SKIP DUE DILIGENCE
It’s easy to avoid checking out a commercial property thoroughly.
Between the numerous charts, historical data, and other often mind-numbing information, you might be tempted to rely on hearsay, or to stick with the small amount of information given to you by the seller.
Don’t be fooled, however, by smooth-talking sellers assuring you how much money you’ll make from a commercial investment property. Make sure you investigate factors such as population demographics, unemployment rates, and other key metrics.
MISTAKE # 4: DON’T GO AT IT ALONE
With commercial income properties, that means putting together an experienced team that includes:
an experienced real estate lawyer,
property manager and
commercial real estate broker.