Buying commercial real estate is a big investment that can produce a lot of revenue if it is done right. However, it can also be a money pit if the wrong property is bought.
Here are 5 mistakes to avoid when buying commercial real estate!
1. Market Value
The value of commercial real estate can be much harder to determine than residential properties, meaning that the price may not reflect the market value.
Appraising the commercial property is difficult because typically residential properties are compared to similar properties and then valued based on that, but commercial properties are very different from others.
It is easy to miscalculate the list price in commercial buildings that have renovations and improvements, as well as inventory within the building.
2. Not Knowing the Owner’s Reason for Selling
When buying a commercial building, it is important to know the whole story of why the owner is selling.
If you are planning to open a pizza restaurant on the property, but the previous owner is selling because they had a pizza restaurant that went bankrupt, you might want to reconsider.
Similarly, if the owner has a small business that they want to move to a better location with more customers, you might not want to start your business there either.
3. Not Being Ready to Start a Business
Oftentimes, people who purchase commercial buildings are doing so because they wish to open or start a business.
However, business ventures don’t work out when the buyer isn’t fully ready to start and put all of their attention toward a business when they purchase commercial property.
Making sure that you learn everything about the potential for a building before you purchase it is another part of a successful purchase. Some buildings come with codes that you can’t build certain things or change elements of a building.
4. Not Researching Property Value to You
Depending on the type of business that you intend to open, you’ll need to make sure that the location of the property is conducive to what your needs are.
For example, if you plan to open a restaurant, you’ll want to make sure that the neighborhood demographic caters to the working class that you’ll need to hire as employees. You’ll also want to make sure that if the restaurant you’re opening is fancy, that the neighborhood is affluent enough to keep you in business.
5. Bad Negotiation Tactics
Negotiating a good price with the seller is crucial and a mistake that buyers make all the time when looking at commercial properties.
It’s a good idea to make sure that you don’t show the seller how much you want their property, that you play towards their reasons for wanting to sell.
This will allow you to have the upperhand during negotiations because you don’t need the property, they need to sell it – even if you DO need the property.
