Common Mistakes of First Time Commercial Real Estate Investors

Even with the ebb and flow of the real estate market, due to its long history of being a huge (potential) money maker, there are still people that strive to succeed in the commercial real estate market as investors. When you know what you’re doing, the investment is one that can certainly pay off, but if you don’t, the consequences can prove to be dire.

The good news is that you can learn from the examples of others when it comes to how to avoid certain common mistakes that first time commercial real estate investors tend to make. Here are five of them.

They don’t make a budget. Although a lot of people don’t like to think about it, investing brings with it quite a bit of risk and so it’s not a good idea to be spontaneous when it comes to the amount of money that you will put into any one project. Therefore, make a decision to decide beforehand regarding how much you are willing to spend, whether that’s in actual dollar amounts or a percentage.

They don’t seek wise counsel. There’s a Proverb that states there is safety in wise counsel. This would definitely apply to real estate investments. All of the passion and research in the world will not compensate for having a tax strategist, an attorney (one that specializes in real estate investments) and a couple of mentors on board to assist you in deciding what to do and what to avoid.

They don’t properly insure their property. In other words, they underinsure it. If you have a rental property, it’s a top priority that you make sure that your insurance policy covers full replacement, liability and rental coverage. We’ve all seen commercials about the oftentimes unforeseen drama that comes to purchasing cut-rate insurance. You never know what the future holds. Make sure you purchase an insurance policy with that frame of mind.

They don’t have a “reserve fund”. A huge mistake that a lot of first-time real estate investors make is that they don’t have some money saved up for any incurring expenses that may take place with their property within that first year. If there is (another) shift in the market or you’re unable to rent the property out and yet there’s money needed to maintain the place, you need to not go into debt when it comes to finding a viable financial solution. Therefore, make sure you have a reserve fund set in place specifically for this circumstance.

They allow fear (or overanalyzing) to keep them from making a decision. There are some people in a fixed rate remortgage that made a financial choice that was best for them at the time, but they might end up feeling stuck now. And is there a feeling that’s worse than that? You know, wanting to make a decision and feeling like you can’t? This is also an area where a lot of investors mess up. They (for instance) look at a property that they like, run the numbers and see that it’s feasible and yet they still don’t make a move because they keep trying to weigh out all potentially threatening possibilities. If you’ve taken conscious steps and made the concerted effort to avoid the previous four mistakes in this article, then don’t allow fear to paralyze you. Yes, with investments, there are always risks, but with wise investments, more times than not, there are also big rewards.

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