When you are thinking to invest in commercial real estate, then there are chances of committing various mistakes such as unable to understand the local market, too much importance to returns, not underwriting the current tenants, not bankrolling the sponsor and more importantly not understanding the risks. So, take a look at the shared slides which reveals the top 5 mistakes in commercial real estate investments.

1. Top 5 Mistakes in Commercial Real Estate Investments

2. Investing in the
commercial real
estate sector is
always rewarding,
however, there are
certain mistakes that
you as an investor
must avoid
committing.

3. Here are the top 5
mistakes in
commercial real
estate investments
that you should know
about.

4. Unable to
understand the
local market

5. This is one of the most
common mistakes
committed by the
majority of the
investors investing in
the commercial real
estate sector.

6. Moreover, as the value
of a commercial
property is
determined by the
local market
conditions which
make it important to
obtain some local
demographic
statistics before
investing in a
commercial property.

7. Demographic factors
like existing
population, projected
population growth,
projected job growth &
average household
income are some the
things that affect the
future growth
prospect of a
commercial property.

8. Too much
importance to
returns

9. Most of the time it is
seen that investors
always prefer the
commercial property
with the highest rate
of interest without
considering any other
property.

10. There are four ways to
make money and
higher gains in the
commercial real
estate sector and they
are cash flow,
appreciation, equity
growth & tax benefits.

11. Due to this one cannot
look at returns alone
as the rate on equity
provides a better
measure of the speed
of wealth creation and
the tax efficiency in
doing so.

12. Not
underwriting
the current
tenants

13. Moreover, it is very
important to consider
the financial condition
of your tenants before
renting them the
commercial property.

14. If you are leasing a
large part of your
commercial property,
then you must compile
all the data of your
various tenants who
are working in
different sectors &
categorize them on the
basis of their job
profile.

15. This will help you in
the long run like if a
particular industry is
facing financial
instability, then the
tenants who are
working in that sector
will face problem in
paying rents.

16. Not
bankrolling
the sponsor

17. Just as it is important
to understand the
local market and
ensuring the
commercial property,
you should also
bankroll the sponsor
of your commercial
property.

18. Moreover, you must
also look at the way
the previous deals
which have been
finalized by the
sponsor are turning
out presently.

19. It is also equally vital
to make sure that the
sponsor is not
involved in any
litigations and has not
been sued by any
previous investors.

20. Not
understanding
the risks

21. It is a well-known truth
that investing in the
commercial real
estate sector is
fraught with many
risks and as an
investor, you should
be aware of all these
risks.

22. The sponsor of your
commercial property
should disclose all the
risk factors involved in
the particular
commercial property
in which you are
investing.

23. Furthermore, it is
important to not only
review the risk factors
in the commercial
property but also to
understand the risks
of this type of
investments.

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