Commercial Real Estate Investing Mistakes to Avoid

Tam-Bay Commercial Realty, Tampa FL Commercial Real Estate Broker


Commercial Real Estate Investing Mistakes to Avoid

Investing in commercial real estate may seem like the surest investment ever. After all, whatever piece of commercial real estate you buy, someone will likely need it. And if you only adjust the price, your investment is bound to pay off eventually. While all this may seem true, it is essential to note that investing in commercial real estate isn’t always wise or lucrative. This article will explore the most common commercial real estate investing mistakes and what you can do to avoid them.

Typical commercial real estate investing mistakes

Jumping in too fast and too deep. This, in a nutshell, is what constitutes most commercial real estate investing mistakes. If you only have ideas about commercial investment from watching movies, it may seem like it’s all about quick decisions and confident attitudes. But, in actuality, investing in real estate is mostly about research, estimates, and long-term market tracking. Once you understand this, you are far less likely to make any of the following mistakes:

Picking the wrong property type

There are four primary types of commercial real estate:

  • Office
  • Industrial
  • Retail
  • Multifamily

Each type of real estate has its own set of pros and cons, both in ROI potential and maintained requirements. Moreover, every kind of property has its legal boundaries. Therefore, before making any commercial investment, it is worth understanding what type of property you are looking for. Depending on your financial situation, a particular piece of property can be a bad investment, even if you can seemingly afford it.

You need to fully understand what kind of commercial property you are investing in.


Failing to understand the numbers properly

There is a big difference between buying commercial property and being able to afford it. The former means that you only have the necessary financial backing for the initial investment. The latter implies that you can afford all the maintenance, repairs, and utility costs your real estate will need until it becomes profitable. To understand the numbers behind your investment, you need to carefully study the available financial papers that the current owner must provide. They tell the true story of how costly the property is and whether you’ll be able to afford it.

Overextending your finances

Similarly, one of the worst situations you can put yourself in is overextending your finances. Once you explore your financing options and understand your limit, it can seem tempting to go for the first investment opportunity you can afford. But, if this investment doesn’t work out, you can easily find yourself in considerable trouble. Commercial real estate investment, just like any other investment, needs to be a calculated risk. Even a relatively modest piece of commercial property will cost a fair amount. And it would be best if you considered your lifestyle (and your family) before you make any significant investments.

Mishandling taxes

Depending on where you are situated, investing in real estate can bring terrific tax benefits. But, this often leads inexperienced investors to only focus on them and not appreciate the full extent of their financial responsibilities. For example, property taxes can easily rise over time. This can lead to an increased expense that you’ll have to deal with. Capital gain taxes are less prone to change but are essentially unavoidable. What’s important here to remember is that dealing with taxes is not a one-and-done deal. You need to establish a long-term strategy and understand the benefits and liabilities you are likely to face.

You’ll have a hard time finding a successful investor that doesn’t fully understand the taxes they are dealing with.


Underestimating the cost of renovation

A good rule of thumb to follow in real estate is that if an investment seems too good to be true, it probably is. One of the common mistakes people make is to get a piece of real estate in poor condition at a low price. This may seem like a savvy decision as you get a decent piece of real estate at below-average prices. If the seller was savvy, they’ve likely underplayed the necessity and the cost of repairs. But, once you factor in the actual cost and scope of necessary repairs, you will soon realize why the price was low. It is paramount that you educate yourself on real estate repairs and their usual cost. Only by doing so can you correctly determine whether a particular piece of real estate is worth the investment.

Failing to research the local market

Whatever piece of commercial real estate you buy, it is crucial to understand that it is not an isolated object. It is situated within the local market. And it is the local market that determines how valuable the property is or will be. If the local market is dying out, you can hardly expect new businesses to come along and give you money for your property. On the other hand, if the local market is thriving, it only makes sense to expect decent ROI. The local market is the determining factor in whether or not your commercial real estate will bring your revenue. So, make sure you study it with due diligence.


Few commercial real estate investing mistakes are as costly as not understanding the local market.


It is also essential to understand the local companies that can aid your investment. If you need help from commercial movers in Tampa, it is worth knowing how to find and team up with experts. You can recommend them to businesses who want to rent your space. Also, you should be aware of the local realtors and how effective they are. Cooperating with the right professional can help you rent out your commercial property faster.

Going at it alone

Finally, when it comes to commercial real estate investing mistakes, it is worth noting that you are far more likely to make them if you go at them alone. The same rule applies to buying a full-fledged business. Namely, if you have no one to help you assess the situation, you are far more likely to get taken away by emotions and make an unwise investment. So, if possible, try to find patterns. Two heads are better than one, especially when it comes to costly investment. Yes, you may have the ability to make on-the-spot decisions, as you would if you were going at it alone. But, as we said, commercial real estate is not something you should invest in on the spur of the moment.


Adam Brubaker