MacRo shares its top 5 commercial real estate mistakes to avoid at all cost.
Whether you're a newbie or a veteran that's been in the commercial real estate trenches for decades, mistakes happen. Not every transaction is ideal. Not every property operates seemlessly. Not all tenants are angels.
We've all been there and done that. For those of you that are new to commerical real estate investment or ownership, take note. For those brokers that have been on a great run, heed this gentle reminder.
Here are the top 5 commercial real estate mistakes to avoid at all costs:
#5--Poor or Non-Existent Due Diligence
Rushing into an investment due to excitement or to gain a better price is not a great idea. Some very experienced investors might be able to truncate or bypass executing due diligence on a property to gain a negotiating advantage. But this is not advisable, particularly for investors that are new to the game.
Thorough and well exectuted due diligence--while never 100% risk proof--will give your deal the highest chance for short term success and long term profitability. Without it, your investment risk will sky rocket and investment crippling contract provisions or building flaws could be overlooked.
#4--Not Having an Escape Hatch
Any investment involves risk. Before you sign a contract, perform your due diligence and map out several exit strategies to get your money out of the project while minimizing your losses. It's good to be optimistic but not overly so--sometimes a glass half empty perspective is useful for limiting your risk should an investment go off the rails.
#3--Borrowing Too Much
Finding yourself over-leveraged is not a good place to be. Just because you can secure a large loan does not make it a sound decision to take it. Over-leveraging a commercial real estate deal puts you in a precarious situation and leaves you little room to weather market downturns or unexpected or overlooked capital expenses. Understand what you can take on. The biggest deal isn't always the smartest deal. Liquidity is critical to successful investments.
#2--Letting Your Emotions Cloud Your Judgement
Hunting for a great commercial real estate investment is an adrenaline rush. It's exciting and emotional. But don't fall into the trap of letting your emotions blur your objectivity. Sound investments are made when there's a balance of objective analysis--understanding the market, running the numbers and running them again, strong due diligence--and controlled energy and enthusiasm. Having a strong vision is wonderful. Sticking to that vision when the numbers tell a different story can have devastating outcomes.
#1--Going It Alone
No one really closes a commercial real estate deal on their own, completely. Professionals are almost always involved--lawyers, inspectors, brokers, bankers, contractors...the list goes on and on.
The question is this, however: do you have the right team? Is this a group of trusted partners? Or is it a haphazard rotation of professionals that change for every negotiation? Securing the right team, including partnering with an experienced commercial real estate expert with local market expertise, is critical to successful commercial real estate invesments and ownership.
If you're exploring investing in or selling a commercial property, or if you're looking to build your advisory team, reach out: The MacRo team can help.
Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012. He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.