A few must-avoid mistakes for new investors in commercial real estate
Online, May 9, 2014 (Newswire.com) - In the last few years, commercial real estate has become a lot more popular among people. The number of new investors has been rising. The news is filled with stories of new investors having to deal with a number of problems.
When entering a new field, individuals usually have to deal with a number of issues owing to the lack of experience and knowledge over the matter. To be successful with commercial real estate, knowing the ground rules is important, states Todd Tretsky of CRE-Finance LLC.
Are you planning to invest into commercial real estate or are a new investor? If yes, here are few must-avoid mistakes. Take a look!
Mistake #1 Turning a Blind Eye to Local Market Conditions
Your understanding of the local market conditions can make or break your investment. New investors often tend to ignore the research work essential to get familiar with the market developments, the effective strategies of that time, and the profitable areas to make an investment.
Keep a close watch on the market conditions to determine the value and profitability of a deal. Investing into properties when the market is good may turn out to be a goldmine! Don't miss out on opportunities in the market.
Mistake #2 Trying to Do-It-Yourself
Being new to the field, it is impossible to know everything and do it right. Use what you know and seek help with what you don't. Profit from the experience of others as a little assistance from a professional could end up saving you a lot more money in the long-run. Real estate matters are complicated involving different tax laws, finances, insurance, and contract laws that can jeopardize your investment. Hire a professional to get it right. For your lending needs, please call the professionals at CRE-Finance LLC at 855-515-5585.
Mistake #3 Inaccurate Calculations
Real estate is a game of numbers and failing to calculate the income and expenses accurately may end up costing you heavily. The value of the property is determined by net operating income (i.e. gross revenue less operating expenses). Projected numbers simply don't help. If you want to make a profit, go for the real operating numbers. Getting the figures wrong usually sows the seed for debts and losses. Remember, tweaking the numbers on papers would help pay the bills.
Mistake #4 Too Much Borrowing
Making entry level deals with 100% financing is the perfect recipe for disaster. The only question then remains is when? Do not go for too much borrowing in this business until and unless you have a solid plan backing you up with sufficient capital. Use the break-even ratio to guide you through!
Mistake #5 Lack of Planning & Multiple Exit Strategies
Failure to take into account the best case and the worst case is assured trouble. Before making the deal, ask yourself a number of questions to make a comprehensive investment plan. A few questions to consider include:
• Will you be able to manage the property better than the seller?
• Do you have specifics of how to go about it?
• What improvements are needed and what is their cost?
• What things can go wrong?
• How profitable is the deal?
• How long will it take to sell the property?
Make at least three exit strategies to get money out of the deal in order to be successful with it.
Be wise enough to avoid these errors as the consequences can be real and painful. Let commercial real estate turn out to be a pleasant dream to sleep on rather than a horror you regret.
It is also wise to contact the mortgage professionals at CRE-Finance if you have any questions regarding commercial real estate or are seeking financing. Please reach out to Todd Tretsky at 212-257-7305 or Rich Tretsky at 212-257-7307. You can also visit us at www.cre-finance.com