Day 6: Top 5 Mistakes of Beginning Commercial Real Estate Investors (Part I)
Our top 5 list of rookie mistakes:
1. Ignoring local market conditions
There are two levels of due diligence required to evaluate a real estate investment--the market and the property. And of the two, local market conditions trump everything else.
A great property in a bad market can be a big loser. A poor property in a great market can be a gold mine. How do you know the difference?
Every market is different, and a deal technique or property type that is profitable in one market it does not mean the same holds true anywhere else.
Analyzing the demographic trends of population growth, income, and employment in the local market will tell you where opportunity lies, or not. It will also show which property types are in demand, or oversupply. Those conditions will make or break your investment.
Investing in an area with declining demographic trends is destined for trouble. So learn your market. Then listen as it tells you how, when, and where to invest.
2. Inadequate property due diligence
The second level of due diligence is the property condition, including physical items such as building systems, environmental matters and structural components. Just as important are the intangible items, such as title, survey, and zoning and land-use regulations.
Knowledge of contract law, insurance, finance, accounting, and tax law is also critical to doing things right at the beginning to insure success at the end.
If you've never done it before, this is not a DIY project. The money you think you'll save by doing it yourself can cost twice as much to fix, and may jeopardize the entire investment.
Red Adair, the famous oil and gas field firefighter, said, "If you think it's expensive to hire a professional to do the job, wait until you hire an amateur."
Admit what you don't know. Approach the property like an open book test. If you don't know the answer to a question, find an expert who does know to give it to you.
Get accurate estimates from professionals of what it will cost to fix what is wrong. The time spent inspecting the components is minimal and can save thousands of dollars in unexpected repairs.
Alright! We will just begin with 2 tips for today. Stay tuned the rest on tomorrow.