Investing in commercial real estate can be extremely lucrative, especially if you make the right decisions. Too often, however, investors fail to get the returns on investment they anticipated. If you’re investing in commercial real estate for the first time, it can be challenging to evaluate which opportunities can generate profit. To navigate the challenges of the commercial real estate market, follow principles that help you minimize risk and maximize returns.
1. Remain Objective
It’s easy to get carried away by the dream of the perfect investment property and ignore the red flags that signal problems. When evaluating an investment opportunity, it’s critical to engage in an objective and detail-oriented analysis that focuses on the potential pitfalls as closely as the opportunities.
Paul Daneshrad, CEO of billion-dollar investment firm StarPoint Properties, warns against allowing emotions to cloud the risk assessment process. By doing your due diligence upfront, even if the means crashing your own party, you can save yourself the heartache and wasted money down the road.
2. Keep Your Eye On The Profit
There are plenty of high-value buildings that are exciting ownership opportunities but don’t confuse those properties with investments. As an investor, your goal is to produce returns, not impress with the state of your asset. If you want to make a profit, you’ll have to put in the time and effort to increase your property’s value and generate an income. This means the real estate you invest in may not be the most beautiful acquisition.
3. Don’t Diversify Too Quickly
If you’re new to the commercial real estate game, consider focusing on one type of investment until you’ve any major projects associated with the assets. Whether your focus is office space, retail buildings, or apartments, spend time perfecting the opportunities in front of you before you move to a new type of venture. Spreading yourself too thin increases the risk that you won’t have the capacity to give your deals the attention and effort they need to really pay off.
4. Make Sure Your Assets Are Protected
Investments come with risks, but you don’t have to be unprepared for problems. Make sure you know the legal history of a property before you invest in it, and then work with a legal team to ensure that both you and your asset are protected against liability. It’s also helpful to keep assets separate to insulate each against any legal issues that might originate from another.
If you invest wisely, commercial real estate properties can provide the income potential, appreciation rate and asset value increases that give you impressive returns on investment.