Originally published on theeconomyforum.com
Investing in commercial real estate can be a very profitable venture if done correctly. However, if you want to see positive returns on your money, you will need to tread carefully to avoid common mistakes. Take it from the finance expert in Baton Rouge, J.D. Perry, who has over 20 years of experience in financial analysis, corporate cash management, asset management, environmental mitigation banking, and real estate.
1. Neglecting to conduct sufficient due diligence
Signing on the dotted line too quickly and before you have done proper diligence on a property you are considering investing in is one of the biggest mistakes you can make. You should ensure to ask a few crucial questions before closing any commercial real estate deal. For instance, you should find out what current rent rates are or the vacancy rates over the last couple of years. If you neglect to ask these questions, you could end up with a non-performing asset that will curtail the returns you get from it.
2. Overestimating your cash flow
You want your commercial investment to give you maximum returns. However, most investors make the mistake of overestimating cash flows with the result that they are disappointed when they finally take a look at the numbers. This is because they have not taken into account expenses such as maintenance costs, taxes, insurance, and advertising fees. Ensure that you sit down with a qualified accountant to figure out the cash flows you can realistically expect from an investment property.
3. Forgetting to check zoning ordinances
Zoning ordinances determine what type of use property may be put to, so it is crucial to ensure that you are familiar with them. This will help you avoid investing in a commercial property intending to use it for a particular purpose only to discover that you cannot do so due to ordinance violations.
4. Ignoring market dynamics
No matter how attractive a commercial property seems, it will provide little to nil returns if you do not pay attention to market dynamics. You should conduct thorough research on demand and supply to determine which type of commercial property is experiencing the highest demand to maximize returns.
5. Failing to understand your lender's requirements
Ensure that you schedule a meeting with your lender to discover how much they are willing to underwrite. This will help you avoid spending a lot of time and money looking for the right property only to discover that your financial partner is unable or unwilling to provide the necessary finances.
There are plenty of dangers and risks associated with investing in commercial real estate and this article only touches on a few. Remember, getting all the answers is important and if the deal gets away so be it. Don’t let the age-old sales technique of making you think you’ll lose the deal make you sign off on a bad deal. However, you should now be able to spot a few common issues, avoid them, and keep your money safe.
About J.D. Perry:
J.D. Perry of Baton Rouge, LA has the reputation of a tenacious and enthusiastic executive in the financial services industry. He is the former Chief Executive Officer of JP Global Capital Management and founder of ViaCap Partners, the parent company of Moss Point Financial. Mr. Perry brings over 20 years of experience in top management positions, with a proven track record of administering billions of dollars in investable assets.
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