Successfully investing in commercial property requires an interest in serious planning, a strong foundation and a long-term strategy to see significant profits. Having a “get rich quick” attitude will eventually lead you into risky investments that won’t be lucrative. Even seasoned investors make mistakes, so it’s especially important for first timers to put together a team of professionals who can mentor and guide you in the right direction. Here are the top five mistakes of new commercial property investors.
1. No Overall Strategy
To successfully invest in a commercial property, you must have an action plan from day one. It’s wise to outline your overall investment strategy for your short-term and long-term goals. Are you chasing short-term yields for now or are you looking for long-term capital growth?
This will determine which type of property you should invest in to meet all of those goals—whether it’s retail, office space etc. Always make financial decisions with this overall strategy in mind and your investment will be safer and smarter.
2. Financing on Your Own
Choosing an incorrect financial structure can almost be as harmful to your investment as choosing the wrong type of property to invest in. Seek help from a qualified professional mortgage broker, especially if it’s your first investment property. They will know the ins and outs of investing to this magnitude and can advise you on which financial structure is best for you—potentially saving you thousands of dollars years later.
3. Investing is About the Economy; Not Emotions
Investing is and always will be a numbers game. Before you take the plunge, be sure you know your numbers forward and backward. Pay attention to the market and don’t let your emotions get the best of you. Commercial property investing is the opposite of buying a house.
You buy a house because you fall in love with the house itself, the location or overall aesthetics of the property. Financial gain should always be your number one motive so keep your emotions in check. Ask yourself if you are making the smartest decisions based on what makes sense for your portfolio.
4. Cutting too Many Corners
As a first-time investor, it’s easy to be caught off-guard by how much money you’re spending. However, it’s not the time to cut corners to minimize outgoings. Always hire the necessary team to help you including accountants, attorneys and property managers. You might think you’ve calculated all of the costs associated, but if you don’t budget for unforeseen occurrences, i.e. prolonged vacancy, maintenance issues or upgrades, your cash flow will really suffer.
In addition, there could be legal issues you aren’t aware of that need to be handled by a professional. Property managers are a win-win as they can save you time and money by allowing you to focus on other things, such as investing in more properties. Think of it this way, if you build a large portfolio, you won’t have time to chase down tenants for rent money or market your properties to get good returns.
5. Don’t be too Cautious
Waiting too long to take action or over analyzing a potentially hot market can cause you to miss out on maximum gains in value and income. Procrastination does not lead to successful investments, especially if you’re trying to make it past your first property and build your capital.
Of course, it’s important to not act impulsively either. The best rule of thumb is to do your homework and learn as much as possible about the property so you can be comfortable with your investment decision, and then go for it!