Commercial real estate is a popular investment choice and there is some good money to be made if you know what you are doing. Unfortunately, a lot of new investors fall prey to some of the hidden hurdles that can trip you up and ruin the value of your investment. So, if you are considering a commercial real estate investment, make sure that you watch out for these hidden issues.
Hidden Maintenance Issues
Maintenance is always a problem for landlords of any kind, but when you are dealing with a large commercial property, hidden maintenance issues can cause you some serious problems. Once you have tenants in, they will be liable for some of those capital expenditures but in the meantime, it’s down to you to pay to keep the building in good condition. Even after you move tenants in, there will be certain areas that you need to cover. If the building is in good shape, that’s not a problem but if you buy a building with some serious problems and you weren’t aware of them beforehand, you’re in big trouble. So, make sure that you have a survey carried out and they are thorough so they don’t miss any hidden issues.
A Difficult History
Buildings with a difficult history are much harder to find tenants for. Residential investors will find this if they are trying to let a house where a serious crime took place, for example. People don’t realize that this is a big issue with commercial buildings but it is. Many commercial buildings are rented out on a short term basis by criminal gangs, who will use them to manufacture and distribute drugs. If potential tenants find out about this, they will definitely think twice about signing the lease. The good news is, you can use companies like stewarts drug testing to see whether the building has previously been used for criminal purposes. If it has, you then need to go about deep cleaning the building to ensure that it is safe for businesses before they move in. It’s best to be upfront about this with prospective tenants and let them know the situation, but also tell them that you have dealt with it and ensured that it is safe.
A lot of new investors fail to consider the strength of the business that they lease the building to, which is a big mistake. Just because somebody can pay the rent now, that doesn’t mean they are a good choice for a tenant. Think about how strong their business is and whether it has the potential to thrive or not. If the business fails after 6 months and they are forced to give up the office, that leaves you in a bad position. So always ask business owners to give you a rundown of their financial situation and assess them properly before you agree to lease the office to them.
You don’t stand much chance of making a profit on your commercial real estate investment unless you are able to avoid these hidden hurdles.