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3 Commercial Real Estate Mistakes to Avoid

Posted on: June 16, 2017

If you don’t have much experience in commercial real estate, you’ll want to be extremely careful as you secure your first investment.

As you search for a property, it is a good idea to obtain the assistance of as many experts as possible including a South Florida commercial real estate lawyer.

Also avoid the following common commercial real estate mistakes to guarantee that you find the best deal possible:

Inadequate due diligence

With any major investment, you’ll want to perform as many due diligence steps as possible, both on your own and with the assistance of experts like your attorney.

Review every document for the property you are considering in detail including: income statements, profit and loss reports, rent rolls, bills, taxes, and other relevant documents.

Hire a professional to inspect the property’s structural components, roofing, plumbing and electrical systems, and perform a full environmental survey. Review any existing inspection reports.

Don’t attempt to perform any of these critical inspections on your own; you likely won’t have much recourse if there are any major property defects found after your deal is finalized.

Not being cautious with leverage

Utilizing leverage, or the use of borrowed funds, is a common tactic in commercial real estate. Leverage is used by both experienced and newer investors to purchase properties that would normally be outside of their reach with a low-down payment or none at all.

However, it’s never a good idea to borrow too much for a commercial real estate investment unless you have a great plan backing it up and the experience to do it.

The problem of negative leverage can result when the return on the property is lower than the interest rate on the debt, which can result in little to no equity once the loan reaches the end of its term.

Negative leverage can compel you to refinance at a higher interest rate or sell the property at a loss. Unforeseen factors such as vacancies, surprise expenses, and tenant issues will make a negative leverage circumstance far more challenging.

Not hiring an expert

With your next commercial real estate investment being so significant, you’ll want the advice of an experienced local commercial real estate lawyer in South Florida to guide you through the complexities of the market.

Your lawyer will help you avoid the above-mentioned mistakes and others with your next deal. Other steps you may need legal assistance with include drafting and negotiating your purchase agreement, finding appropriate financing, and ensuring that every important due diligence step is performed for the property, including physical inspections and non-tangible items like zoning, land-use, title and insurance.

Call Schecter Law today at (954) 779-7009 for expert advice on your next commercial real estate deal.