The world of commercial real estate investing is vast, and it’s an exciting time to be a part of it. But if you’re new to investing in commercial properties, you may end up falling victim to some costly traps. Here are a few things you should never do in the course of building your portfolio.
1. Dive in without doing research
It’s natural to want to seize investment opportunities as they arise, and right now, there are a number of booming sectors of the real estate market worth diving into. Warehousing demand, for example, has exploded as more and more retailers have seen online orders pick up. And with so many people focusing on their medical needs in the wake of the pandemic, healthcare facilities may seem like a viable bet.
There’s nothing wrong with pursuing popular real estate investments. But don’t rely on positive industry news to make that call. Instead, research each investment you’re thinking of making thoroughly. Buying into a fulfillment center in an isolated market may not yield the same results as investing in more strategically placed fulfillment centers, for example.
2. Forget about maintenance and utility costs
Commercial properties can cost a lot of money to maintain. Neglecting to account for those costs can result in a poor investment choice. Make sure you understand exactly what you’re signing up for before adding properties to your portfolio.
Get copies of existing utility records so you understand the expenses you’re facing. And be wary of buying older properties, which commonly require more upkeep than newer ones.
3. Ignore emissions
The U.S. is growing increasingly earth-conscious, and cities are increasingly imposing rules on commercial properties in an effort to reduce emissions. New York City, for example, will start assessing fees to larger buildings that don’t meet its energy-efficiency standards by 2024.
Before investing in any commercial property, do a thorough energy assessment. Retrofitting a building can be a costly endeavor, and one you may not have the stomach (or wallet) for.
4. Underestimate the cost of renovations
Buying a property that needs work may seem like a reasonable idea, especially if that means snagging it at a discount. But until you get a solid handle on the costs involved in renovating it, be sure to avoid signing a contract. The last thing you want to do is sign up for an overhaul that doesn’t make sense financially.
In fact, it’s a good idea to obtain quotes so you understand what expenses you may be facing. Keep in mind that right now, the cost of building materials is soaring due to limited product availability, so any immediate renovations could turn out to be budget-busters.
5. Fail to diversify your investments
Investors who buy stocks are often told that it’s important to diversify their holdings. The same holds true for commercial real estate investors. Having a portfolio that’s heavily concentrated in one specific market, or one segment of the market, could expose you to losses.
Of course, it’s a good idea to start slowly and build your portfolio over time, so if you’re familiar with a given metro area, it makes total sense to buy your first property there. But should you own six properties within the same three-mile radius? Probably not.
The Millionacres bottom line
Sometimes, enjoying success as an investor can boil down to knowing what not to do. If you want to strike it rich in real estate, plan your investments carefully, and stay away from these mistakes.
You probably know that real estate has long been the playground for the rich and well connected, and that according to recently published data it’s also been the best performing investment in modern history. And with a set of unfair advantages that are completely unheard of with other investments, it’s no surprise why. But those barriers have come crashing down – and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.
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