1. Investing Outside of the Local Market
My Father has always told me to “stick with what you know”. If you live in Kansas City and are investing in real estate, do you think you’ll have a better understanding of the market here or the market elsewhere? It’s not a difficult concept, but many investors make the mistake of buying deals outside of their local market and end up paying the price. Living in the local market allows you to know and understand the demographics in the area as well as investment trends. A deal in Florida or Arizona may look great on paper, but if you don’t understand the market it’s difficult to know or predict what it will do in the future.
2. Not Knowing the Numbers
Make sure to double check your balance sheet! Calculate the returns so you have a full understanding of what to expect. Understanding the basic accounting terms and principals is a key to your success. Every project has its setbacks, but making sure you understand the financial side of the deal will eliminate at least a portion of those.
3. Over-Reaching Your Capacity
It's okay to dream big and want to achieve everything at once. However, don't overreach your capacity! Reaching out of your comfort zone and going above your expertise is a recipe for disaster. As you increase your industry knowledge and capacity, you’ll then be able to tackle larger deals without a problem.
4. Failure to Calculate Rent Sustainability
Don't let yourself disregard rising taxes and utility costs. When tax reassessments after sales take place, there’s a chance the taxes will raise drastically. Also, utility costs continue to increase as time goes on, and disregarding those increases can negatively affect your bottom line. Many renters and buyers tend to overlook the rising costs and find within a few years they can no longer afford the property.
5. Sacrificing Inspections to Win a Deal
Make sure to perform thorough inspections while in the due-diligence period of a contract. Investors who desperately want to buy a deal will sometimes sacrifice timing and length of due-diligence period in order to out-bid other parties. Making the assumption that the property has no thorns will only lead to potential problems down the road. Whether it be a new or old asset, a thorough inspection of the entire property should take place before closing on a deal. Always make sure you know exactly what you’re investing in.
Block Real Estate Services, LLC (BRES) has been investing in commercial real estate for years, allowing our investors to diversify among many property types and locations that we have expertise in. Find more information on what BRES can do for your investment when you click here.
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