10 Ways to Stumble in Commercial Real Estate

Vivian Marino writes in the November 12, 2006 New York Times,

As the residential market softens, many hands-on real estate investors are turning their attention to the commercial side…Making the jump, however, is not always easy.

Ms. Marino’s advice comes largely from “Commercial Real Estate Investing: 12 Easy Steps to Getting Started,” by Jack Cummings. The 10 ways to stumble:

No Financial Plan: The first step in investing is to have a plan based on your goals.
Thinking Location Only: “It’s not location, location, location – it’s location, use, and approval.”
Not Researching a City: Local political attitudes can block your ability to obtain a permit for a use allowed by zoning.
Seeing All Areas as Similar: “What goes on in San Francisco may appear to be the same as what is going on in Chicago or Miami, but in reality it is not.”
No Thought to Tenant Mix: “You can’t expect to draw much business unless you have the right mix of tenants, both within your property and in the neighborhood.”
Miscalculating Costs: “Inspection by a qualified engineer or contractor can help uncover hidden problems.”
Miscalculating Returns: “To get an idea of your initial rate of return…review expenses and income for the most recent year.
Taking on Onerous Debt: “Some investors use their cash flow to pay off principle on their mortgages, thereby speeding up the amortization schedule.”
Doing It All Yourself: “Experienced investors typically have a group of experts in place, including brokers, engineers, lawyers, accountants and property managers, to help with conduction due diligence. (May I humbly suggest appraisers?)
Procrastination: “What good is doing the research if you never put it to use?”

Click here to read the entire article.

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