As the cobwebs decorate the stair railings and ghostly apparitions are hung on entry doors, Halloween ushers in both the trick-or-treaters and the commercial real estate investors who are always in search of the best places that offer the sweetest deals. Yet there are several mistakes that commercial real estate buyers and sellers need to avoid so they don’t get tricked out of their money and livelihood. Check out 3 commercial real estate mistakes that appraisers can help you avoid this fall season.
Mistake #1: Skipping Property Due Diligence
You see the commercial property that you are dying to have. It will fit perfect into your investment portfolio. Yet you’re jumping at shadows that some other investor is creeping up and about to swoop in to take the property right out from under your feet. Throwing caution to the wind and only relying on public records as your guide on the condition of the property, you place your bid only to discover the property isn’t what you expected.
Solution: Sometimes what the description says in the public documents that you gathered doesn’t describe the current condition or appearance of the commercial property. Things change constantly without paperwork being updated. A commercial real estate appraiser can help you perform proper due diligence to verify the property information. Then the appraiser can evaluate the current property condition to figure out its value before you throw quotes out sight unseen.
Mistake #2: Making False Assumptions of Local Real Estate Markets
The commercial real estate market is heating up in your area. You are seeing the deals hit the transaction table as you are getting your financials in order to get in on the action. Then a little gossip hits your ear about a great deal in a neighboring city. The commercial investment seems too good to be true. Assuming market conditions are the same since the neighborhood borders your normal real estate stomping ground, you are prepared to snatch up the property.
Solution: It’s incredible how much market values can change from one street or neighborhood to the next. While you may know the market conditions in your chosen area, many other factors can change the market in neighboring regions that could sour the deal. Getting a thorough appraisal and comps of the commercial properties in this new location will always be ideal. An appraiser can evaluate the comps, the demographic trends, and other factors to ensure you don’t wind up with a bad apple of a deal.
Mistake #3: Shelling Out More Than What The Property Will Bring in Income
Like a kid counting the amount of Halloween treats they will snack on that night, you are envisioning the projected income you will make from this prime commercial real estate property. You are looking at structural components and overestimating the potential revenue. Meanwhile, you are underestimating the operating costs, as you believe you can cut out certain operations to increase efficiency without putting in the necessary homework to ensure those systems can run at that lowered capacity.
Solution: Getting involved with commercial real estate investment is a numbers game. You have to be as accurate as possible about actual net income versus possible projected revenue when placing a bid for the commercial property. Coming in too high with your bid can lead your finances into the red from day one. An important job of an appraiser is to factor in income potential of the property, analyze present systems, and provide you with a more accurate property value outlook so you aren’t paying more than what the property is actually worth when bringing in income.
Buying and selling commercial real estate can be scary as there are many unknowns that can lead you into making mistakes with the transaction. Let us shake out the specters and provide you with a clearer understanding about the real estate investment as when can provide you with our comprehensive appraisal services. We are here to help. Get started with a quick quote, or want to get the appraisal process started, contact us. We look forward to hearing from you.