While commercial real estate investing is widely considered one of the better, safer investments that you can make there are still risks. No investment opportunity is completely risk free but by learning and familiarizing yourself with potential risks and common trappings you can make it easier on yourself with any future commercial real estate investments that you want to make.
Larger Property, Larger Risks
One of the biggest risks in commercial real estate is the property itself. With larger projects like office buildings or shopping centers you can run into higher maintenance costs, lower returns on investment (ROI) and difficulties finding reliable tenants. Before investing in any property, make sure that there is a solid plan in place and that all of the numbers and math add up.
Inexperience Can Be Deadly
Another big risk comes from having a lack of knowledge when making an investment. The best way to go about commercial investing is to start with smaller investments and learn more as you go and build up your experience and portfolio. Finding a mentor or firm that specializes in commercial real estate investments will help save you more money and time in the long run even if it’s more costly in the present.
Proof of Capital
An often-overlooked risk in commercial property investing is that commercial real estate requires capital. When dealing with professionals you won’t be able to make much headway or find good opportunities without proof of capital.
Ties Up Your Capital
Commercial investing ties up your capital long-term which can be extremely problematic especially for new investors. You have to be able to afford the costs of commercial investments over an extended period of time or your ROI will falter as a result. Commercial real estate also is not very easy to sell quickly so you need to make sure you have financial reserves to take care of any expenses.
Avoid Failing Business Models
If you’re investing in commercial properties make sure that you assume tenants will default on their lease. Prepare your insurance correctly to make sure you would be covered should a tenant default, as it will save you time and quite the expensive headache. Another thing to pay attention to are failing business models or businesses that are moving online including banks and certain stores or specialty shops.
Stay Patient
When compared to residential investing everything in commercial real estate takes much longer. Performing the proper due diligence takes months, not days and other items like build outs, renovations and finding new tenants take longer than residences. The fortunate part of everything is that the leases are also always longer with commercial investing. Many CRE investors have some experience with residential investing and may expect it to work similarly fast but that can be a costly mistake. Instead, stay patient and make sure that any work that needs to be done is handled the right way regardless of how long it takes.
Economic Recessions
Recessions have become more and more of a concern for investors in both residential and commercial properties. If a recession should occur then jobs disappear and businesses begin to suffer. Should this occur then your investments might begin to produce little to no revenue. Having a large reserve of capital will help you survive any economic hard times that you may have to encounter.
Helping You Navigate the Market
Instead of facing all of these and other risks on your own see why so many investors turn to the aid of Landwin. One of the industry’s leading LLCs, Landwin has helped investors maximize their commercial investing returns for over 30 years. Our team has the knowledge, training and experience needed to find the lowest risk investment opportunities making it easier for you to protect your investment and see a positive ROI for years to come. Commercial real estate is often cited as a safer, easier investment when compared to residential properties but it’s still important that you consider all of the risks before investing. Call Landwin today and let us help you on your way to a long and successful career investing with commercial real estate properties.