10 Common Mistakes in Commercial Real Estate to Avoid
Commercial real estate is a very lucrative business to be in if you lay your cards right. It’s also highly competitive, which means you can’t afford to make careless mistakes. Here are the ten that trip up well-intentioned would-be real estate moguls most often.
Starting Before You Have the Capital
Property is expensive! You need to know your budget and limits before you get started. Running out of money in the middle of a project is much worse than having to wait to buy.
Settling for a Familiar Lender
You may have a fantastic relationship with your personal or mortgage banker. That’s great, but unless they are also trained in the specifics of commercial real estate lending, they probably won’t be very useful as you start this endeavor.
Lack of Research
It’s essential to do your homework in commercial real estate. If you’re interested in a specific property, learn everything there is to know about it.
Not Having a Game Plan
What’s your goal? It might shock you how few developers can provide a good answer to that question. Craft a specific mission statement, and don’t lose sight of it.
Not Having a Business Plan
If you have a goal, you need to build a strategy around it. A detailed business plan will not only keep you focused but serve as a crucial tool to secure financing from lenders.
Poor Cash Flow Analysis
Before you agree to terms with an investor, you need to create a balance sheet and make sure your monthly payment still leaves you with at least enough cash to meet monthly operating expenses.
Failing to Negotiate
It’s perfectly okay to make counter offers or reject terms. In fact, it’s smart to do so. Position yourself to get the best deal that works for you. It may surprise you how easily you get it.
Hiring an Inexperienced Lawyer
You need to have legal counsel that is not only experienced in the law but specifically in commercial real estate law. This isn’t an area for general practice; hire a specialist.
Failure to Look into SBA Options
The U.S. Small Business Administration (SBA) offers loans to developers in many circumstances. If you don’t at least see if you qualify, you may be shooting yourself in the foot.
Poor Organization and Presentation
Finally, the better organized you are, the more successful you will be when dealing with banks, lawyers, vendors, buyers, and sellers. Always have pertinent information available and broken down to simple terms.
