Risk Management: 6 Challenges Most Investors Face When Buying Commercial Real Estate

There’s no denying that buying commercial real estate can be a lucrative investment option. You can diversify your portfolio, build equity, and earn money on your investment for many years to come.

Still, that’s not to say that investors don’t face challenges when buying commercial real estate. Indeed, it’s not uncommon for them to encounter these obstacles and issues: 

Buying Commercial Real Estate

You might think it’s easy to find high-quality commercial real estate currently available. However, that’s not always true. Finding reliable platforms and trusted real estate professionals who’ll show you only the properties worth your attention can take time.

Some property investors also get frustrated by online platforms showing commercial properties for sale that have already been sold. Thankfully, once you’ve established solid connections with trusted commercial property experts, your experience should change. 

Owning a commercial property typically means you’ll have tenants to manage. They pay money to use your building, and in return, you make sure they’re happy. If there are any issues with the building, you may be required to take care of them. 

Effectively being ‘on call’ for tenants 24/7 is not every investor’s idea of fun. In that case, you must decide whether to hire a professional management company or self-manage your properties. Property management companies take care of everything for a fee so you can focus your time and attention on other endeavours. However, that fee won’t be small, so it’s important to weigh up the benefits and costs. Only then can you make an informed decision. 

Market volatility describes price movements that go up or down. It’s a normal part of investing, and commercial properties are no different. Still, that doesn’t mean navigating market volatility isn’t frustrating. 

Predicting possible supply and demand fluctuations, changes in economic conditions, and unexpected local market changes can be a lot of work. However, if you fail to keep up, you’ll have far less insight into your commercial property’s prospective returns. 

Commercial real estate

Most investors with properties in sought-after areas don’t have any problems finding tenants. However, that doesn’t mean all tenants are reliable and will take care of your investment. Some commercial property owners struggle with tenants who don’t pay their rent on time or don’t respect their property. 

As desirable as investment properties are to own for their profit potential, not just anyone can jump into buying one. They tend to have higher entry costs than properties you intend to live in and use yourself. 

Down payments are dictated by the bank and loan type. As a general rule, they’re usually 20-30%. The loan range also tends to be shorter than residential properties at around five to 20 years. These costs and unique limitations prevent many hopeful investors from entering the commercial market. 

Commercial tenants

Just as you would do your due diligence and perform research when buying a residential property, you must do the same with commercial properties. However, given their typical location, size, and added complexities, it can be a time-consuming process.

You may need to rely on outside experts to assist with this process. Fortunately, there are many people you can call upon, including accountants, lawyers, real estate companies, and building inspectors. 

As lucrative as investment properties can be, that doesn’t mean you won’t encounter obstacles and challenges along the way. Awareness of the common challenges described above should place you in a better position to plan for them and enjoy a more straightforward and stress-free buying process. 

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