Investing in commercial real estate can lead to financial success. However, careless mistakes can negatively impact an investment and have a negative impact on the potential profits. If you are planning to invest in commercial real estate, here are some commonly made mistakes you should work with your attorney to avoid.
Failing to Research the Property
Before finalizing an offer for commercial property, you need to do your homework. The valuation that the seller might have for it could be over-inflated and you could end up paying far more for it. Although the seller is entitled to make a profit on the deal, he or she does not have the right to gouge you.
To determine the property value, you need to pay attention to a number of variables, including the value of other commercial buildings in the area and how much other buildings have sold recently. If you are unsure of whether or not you are getting a fair deal, your attorney can help with the research.
Overlooking Existing Tenant Leases
It is likely when you buy a commercial building, you also take on the existing tenants and their leases. Although taking on a building with tenants already there might seem like a good deal, there could be hidden provisions in their leases that could have an impact on your relationship with them in the long-term.
For instance, a tenant who has a provision in his or her lease that keeps the rent at a fixed rate could mean that you will not be able to increase the rent until the tenant moves out. To avoid this scenario, take the time to review each tenants' lease with your attorney. If there are unacceptable terms in the leases, you might be able to negotiate with the tenants. Otherwise, moving onto another building could be a better option.
Approaching the Investment as a "Get Rich Quick" Scheme
Investing in commercial real estate is not a quick path to wealth. It takes time and energy for an investment to pay off. In the interim, you need to be prepared to handle any financial problems that arise with the property.
Before signing on the dotted line, talk to investors who have experience in commercial real estate. Your attorney can also help to set realistic expectations for your journey. Once you have a full understanding of what you could face ahead, you will be better able to manage your investment and any future purchases you make.