Here are three common mistakes to avoid when investing in commercial real estate.

Mistake #1: Choosing an unsuitable property.

Purchasing the wrong property can be the difference between a profitable investment and a total write-off. In addition to, or before, arranging an appraisal, you should walk (not drive) around the property to assess it for yourself rather than simply relying on the appraisal. There are three main things to check out when evaluating a commercial property:

1. The ingress and egress to the property. It’s important to note whether it is easy to gain access to the property. If the property is a warehouse, can trucks turn in and access the loading docks without difficulty? If it’s a retail property, is it simple for customers to enter and exit the property? Also, is the property noticeable from the street or easy for customers to locate?
2. The buildings or tenants that are nearby the property. In addition to looking at the property itself, you should pay attention to neighboring properties and whether they are complimentary to the plans you have for the property. When evaluating a retail location, will nearby tenants compete with or otherwise affect your planned operations? When evaluating a commercial property, are the nearby facilities being used in ways that will impact your operations (e.g., by handling hazardous materials such as paints, solvents, or other chemicals)?
3. The demographics of the neighborhood. Look around the neighborhood to see the types of people and cars that frequent the neighborhood. Are the demographics of the area compatible with your business plans for the property?

Performing appropriate due diligence (including walk-throughs, appraisals, and title insurance) is the best way to make sure that the property you purchase is the property you think it is.

Mistake #2: Squandering money on unnecessary renovations.

In order to make the most profit off of your commercial property purchase and sale, you need to know which improvements and renovations are worthwhile. It’s also a good idea to conduct an inspection before beginning any improvement projects so that you can accurately budget them and not encounter expensive surprises mid-project.

Mistake #3: Misjudging holding time.

If you want to rehabilitate and then resell a property in the short-term rather than hanging on to it as a long-term investment, then judging when to sell it can play a key role in determining your return on investment (ROI). If renovations take longer than expected or the market changes and there are fewer buyers or more comparable properties for sale, such events can significantly reduce your anticipated profits. Additionally, having to hold on to the property for longer than expected can cost additional funds through loan payments, holding costs, and lost investment opportunities elsewhere.