Common Pitfalls Commercial Real Estate Buyers Can Avoid

Everything about investing in commercial real estate is bigger. The numbers. The risks. The hours. Given the magnitude of commercial real estate investment, it is quite a risky endeavor. A lot of mistakes can be made. Here are some of the more common pitfalls investors can and should avoid.

Ignoring the local market.

When potential investors ignore the state of the local market, the information they take in on commercial real estate evaluation is incomplete. Commercial real estate evaluation is half local market and half property. Local market trends like demographics, income, other similar commercial structures, accessibility, employment and unemployment rates, and many other conditions influence commercial real estate. Not giving local markets the proper consideration can be disastrous.

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Taking taxes for granted.

Many investors, even seasoned ones, sometimes forget about taxes, and the way they move. Investors should stay updated on all the changes when it comes to taxes. There are several problems that can arise when taxes aren’t paid fully, or at all. The worst of which can land a person in jail. Investors should always have their accountants notify them of any updates taxes go through.

Alan Naul is the founder of Javelin Group, LLC, a company that specializes in strategic investments in commercial real estate, especially for senior living and hospitality sectors. Learn more about Naul and Javelin by checking out this website.

Exploring Different Kinds Of Commercial Real Estate

Commercial real estate pertains to property used solely for business purposes. In the United States alone, this industry is worth trillions of dollars. As a steady source of income, commercial real estate comes in many forms:

1. Office buildings
Common examples of these are the skyscrapers that serve as headquarters for investment, companies, law firms, advertising agencies, etc. In a suburban setting, the usual skyscraper is replaced by midrise structures that serve as office centers.

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2. Retail
These include shops, grocery stores, restaurants, malls, and retail chains. This kind of commercial real estate makes most of its profits through selling. This takes up 36% of all commercial real estate operations.

3. Land
Land for commercial use could be a greenfield or an undeveloped land that can be used as a farm or a pasture. It could also be a brownfield, or a parcel of land that was originally used for industrial purposes. Lastly, it could be an infill or developed land that has been vacated.

4. Industrial
This kind of commercial real estate is used for factories involving operations with heavy manufacturing, light assembly, flex warehouse, and bulk warehouse.

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5. Apartment buildings
A common misconception is that apartment buildings are residential real estate. These buildings fall under the commercial classification because building owners use their space to earn income.

6. Hotels
Five-star hotels, hostels, and other structures used for the hospitality business fall under this category. However, property used for Airbnb and other peer-to-peer platforms are not considered part of this category.

In the US, commercial real estate comprises three per cent of the economic output. Its growth usually follows indicators and trends for residential real estate. However, a slowdown in residential real estate may not necessarily mean the same with the commercial side.

Alan Naul is the founder of The Javelin Group. Since its establishment in 2004, the firm has developed and sponsored investments in over $400 million worth of commercial real estate assets. Check out this blog for more resources on real estate.