ABC’s of Commercial Real Estate Investing

Investing in commercial property requires upfront due diligence and help from a qualified real estate professional. “The Don’ts” of Real Estate.

  • Do Not Over Pay – over paying by as little as 10% has unrecoverable consequences.
  • Not getting a property valuation from a qualified Principal Real Estate Broker before you make an offer.
  • Not knowing the cost to run the property: calculating the square foot NNN costs plus utilities for the property whether you pay these expenses or not.
  • Not determining your cash flow requirements for the property before you make an offer.
  • Not performing a 10-year financial analysis of the property: incomes, expenses, taxes (property & personal), utilities, reserves, etc. before you make an offer.
  • Not developing a business plan for each property you own.
  • Not having a quality lease drawn up by a real estate attorney.
  • Not having a qualified and licensed building inspector or structural engineer inspect the property before you close on the transaction.
  • Not having enough down payment money.
  • Not having enough reserve funds for unexpected vacancies, repairs, tax increases, insurance, etc.
  • Not requiring tenant to carry sufficient insurance to protect your property and the property of other tenants.
  • Not requiring tenant to include your company as “additionally insured” on their insurance policy.
  • Not inserting a minimum yearly rent increase for inflation (CPI) in the lease agreement and then Not Collecting the increase from the tenants.
  • Not collecting a security deposit from tenant. Minimum of one month’s rent.
  • Not hiring a full-time commercial real estate company to manage and lease your investment property.
  • Not maintaining the property and loosing the appreciation amount you expect when you sell.
  • Not hiring a cleaning company to maintain common areas of building.
  • Not allowing tenants to make below standard repairs to the building’s mechanicals; plumbing, electrical, a/c, furnace, etc. on NNN leases. The management must keep control.
  • Not having a list of qualified vendors before a repair or emergency.
  • Not getting too close or personal with your tenants. Maintain a professional arms length relationship.

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