1. Failure to research the market
It is critical to understand the property and the general market as a whole. Focusing solely on the property is a huge mistake. Failing to understand market conditions will ultimately cause you to be ignorant of where your property stands against the market. Is your rent per sq. ft. too high? How much should you be paying? In what kind of market is your property located? Perhaps that particular area is not conducive to your intentions for your new property.
2. Failure to execute proper due diligence
Understand everything that will be required to make the property ready for occupancy. Look at the structure, codes and architectural standards. What about licenses, insurance, taxes and other legal ramifications that could affect your certificate of occupancy? Finally, hire professionals to do the assessments and the improvements needed to bring the property up to spec.
3. Failure to do proper calculations
There is a simple calculation for all businesses; gross revenue minus operating expenses. You should nail down operating expenses prior to making the investment. Where many investors fail is over-estimating revenue. It’s easy to dream 100% occupancy, but is that practical if you will not be absorbing all of the leased space? What is the average occupancy of similar properties in the area?
4. Failure to keep a conservative debt ratio
Over-leveraging your property can be a fatal mistake. Unless you have huge cash reserves, you could end up sinking into a hole you will never recover from. It’s like a poker game. It doesn’t matter how good a player you are, if you can’t stand to lose a few hands and still cover the pot, you will be out of the game quickly.
5. Failure to have a plan on how to get out
If a problem arises, how do you get out without losing your shirt? You need a solid executable plan on how to get out if everything goes awry. To where will you move, should your building be unfit for your business? How much will it cost to get out of your current situation, and how much will it cost to move into your new building? Real estate management is more than just keeping an eye on your leases. You should be prepared to answer all of these questions before ever stepping foot into any of your properties.
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