Why Experienced Commercial Real Estate Investors Fail – 3 Common Mistakes
IGNORANCE OF THE LOCAL MARKET
It’s easy enough to get plenty of information about commercial real estate. Whether its from trade magazines, brokers, the media, or investor groups, you can stay tapped into the market 24/7.
However, no matter how knowledgeable you may be about the market in general, no commercial income property exists in a VACUUM. It’s still located in a state, within a city that has its own set of unique factors that affect how well it will perform.
Even within a city there are numerous areas that can be very different: the inner city, suburbs, etc. And while one area might be experiencing incredible growth, another might be struggling to stay above water.
In order to make sure an investment is as good as it looks, you need to investigate factors like:
- population demographics,
- traffic flow,
- local competitors,
- job growth and
- local household incomes and spending patterns.
This is true even for triple net properties.
Systematically collecting data about the local market, combined with the knowledge gained from your existing investments, can give you the performance edge you need to reach your investment goals sooner, rather than later.
HOLDING ON TO LOW-PERFORMING INCOME PROPERTIES
All of your commercial income properties need to be giving you the maximum value for your investment.
Too often, investors hold onto to low-performing properties, blinded by the seemingly large amount of income they receive from it. The problem is that if a property isn’t bringing in what it should, and you find yourself covering its losses with the net income from other properties, you’re actually losing money on two fronts.
In the short term, any money that you need to use to cover losses is money that comes straight out of your portfolio, preventing you from reaching your investment goals, and possibly jeopardizing your entire portfolio.
In the long-term, the money that is tied up with the ownership of that property could be better used elsewhere, with a commercial property that will give you better returns.
So if you suspect a deal isn’t doing as well as it should, either because of the property itself or the people that are associated with it – chalk it up to a learning experience, and get out as quickly as you can.
TOO MUCH MONEY
It’s probably hard to imagine that too much money could cause an experienced real estate investor to trip up.
In fact, having too much money is one of the most common reasons why experienced investors suddenly find themselves stuck with a portfolio of investments that are lackluster performers.
The simple reason is that having too much money can make you LAZY.
Too lazy to do due diligence properly, or to do a thorough check on potential tenants.
It can make it easy to pass off various responsibilities to managers and contractors – without staying on top of the quality of their performance.
And worst of all, having extra money and a healthy portfolio makes it easy for some investors to settle for a deal that’s “almost” as good, rather than waiting for the one that’s top-notch.
If you’ve looked at any of these mistakes and felt a little queasy, don’t wait to take a step in the right direction. Instead, focus your energy and resources on fixing the problem, and you’ll soon find yourself back on the right track.
