Investing in a commercial property is a rewarding venture because you often get higher yields and most of the tenants like to sign a full insuring and repairing lease. However, there are a lot of pitfalls that investors may have to face, some of which can even bring about expensive penalties bringing down their profits all together. There are certain mistakes that most of the investors make when they are buying commercial property that they are not familiar with.
Moving ahead without a plan
If you fail to plan then you are most likely planning to fail. You should always have a long-term vision or plan when you are investing in commercial property to achieve great success. Buying a property without a plan is just not recommended. It is very important if you are using a loan because lenders will never give you money if you do not have a concrete plan in hand. Therefore, never move ahead in buying a commercial property without having a concrete financial plan.
Moving without adequate cash
Depending on a loan to kick start your career especially in commercial property investment is a very risky move. Lenders will give you support only if you have a substantial amount of wealth to inject into a project to kickstart your earnings. It does not mean that you can avoid loans entirely but it is not prudent for you to rely on them completely when you are kick starting your career in commercial real estate. You need to have a certain amount of cash ready to start a project to utilize that in commercial property investment.
Lack of local demand
You should see a property from the lens of the tenant before you are making an investment. Location plays a key role. Whether it comes with a parking or is it accessible with good public transport? These factors are important considerations to make your commercial property competitive. Another important factor is whether the property has excellent footfall. If the property has a good passing trade, then you will get high rent. A good way to find this out is talking to other people in that area whether they want to renew the leases or not. If they are renewing the leases and they find good profit in having a commercial property there and then you can continue with the deal.
Getting into a faulty lease
You all know that a lease is a fixed contractual agreement signed between 2 parties and it is signed only when both the parties agree to it. Many contracts often get renegotiated. However, you should never assume that you are getting tied to a contract without understanding it properly. You should always explore other options before committing yourself to any contract related to a commercial property.
Failed to understand the renewal rights
It is always necessary for you to ensure that you have a renewal right whenever possible. If you do not ensure this, then you might get into a risky deal. Understanding your renewal right is very important for you to ensure that you have the power to end any contract. Hence, planning and negotiations is important at all stages of investment in a commercial property because lack of planning might bring a loss.
Talk to a good property manager at solo401k.com to get the best out of the deal!
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