Investing in commercial real estate can be financially rewarding, but it can also carry significant risks. If you’re not careful, you can wind up dumping large sums of money into a property that doesn’t suit your business needs, that’s expensive to repair and maintain and that is unappealing to future tenants. If that happens to you, then you may be hard pressed to find a way out of your investment, potentially leaving you with long-term financial struggles.
Fortunately, there are ways to reduce the risk of facing such a poor outcome. One of them is to embrace the due diligence process, whereby you scrutinize every aspect of the property so that you know exactly what you’re getting yourself into by purchasing it. That said, there are a lot of misconceptions about the due diligence process, and a lot of mistakes are made throughout it. That’s why in the remainder of this post we want to look at some common mistakes that are made during the due diligence process. By doing so, you’ll hopefully be better equipped to make the commercial real estate decision that’s right for you.
Avoid these due diligence mistakes when purchasing commercial real estate
There are a lot of mistakes that can be made during the due diligence process, any one of which can leave you in a challenging position moving forward. Here are some of the most common errors that you’ll want to be sure to avoid:
- Failing to ensure that the property is up to code: Building codes can be incredibly nuanced. So much so that it can be easy to overlook some aspects of them prior to purchasing a commercial property. Yet, glossing over code violations that eventually need to be addressed can be costly, and it can prevent you from monetizing the property like you hoped. So, make sure you work closely with your inspector and a contractor to ensure all potential code issues are assessed and addressed with the seller prior to finalizing the purchase.
- Taking the seller at their word: A lot of investors want the transaction process to go quickly and smoothly while building a relationship with the seller. As a result, they forego asking tough questions to get the answers they need. Don’t shy away from asking these questions, though. You need a full understanding of the property’s issues and its financial dynamics. So, be sure to request all financial records you may need, scrutinize them and ask hard questions in writing to make a record that you can turn to later.
- Failing to consider the competition: The property in question might seem appropriate for what you want out of a commercial space, but if the location is bad or there is significant competition in the neighborhood, then you may be limiting your income potential. So, be diligent about assessing the area in which the property is located so that you gain a full understanding of the property’s benefits and risks.
Make the commercial property investment decisions that are right for you
Engaging in a commercial real estate transaction can be emotionally charged. Yet, you need to keep yourself centered throughout the process so that you make informed decisions that are based on the facts and not on emotional reactions. This will better position you for acquiring the commercial property that suits your needs. If you’d like additional guidance on navigating the New York real estate transaction process, then please continue to read up on the law, browse our blog and peruse our website for more information.