3 Reasons for Failure in Commercial Real Estate Investing

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There are 3 main reasons investors fail in commercial real estate investing: inaction, being cheap, and doing deals that shouldn't be done. I can't tell you how many times I hear young, inexperienced investors tell me the reasons why they haven't reached their goals. Well, it's time to get out of the slump of wrong thinking and doing what it takes to make this year your best investing year ever. Think of it this way, even if you do only one deal this year, that's one more than you did last year and basically, that's a huge financial improvement. And times being what they are, this is the best time to just in when everyone is running for the exits.

Get Over In-action

You've been learning the ropes and studying deals. You may have even written some offers, but you find something wrong or something that you feel you need to research further and ultimately, the offer never gets submitted. That is what I call inactivity. No matter which way you dice it, education and research is important, but it's not the thing that lands you deals.

Here's how I define activity – Submitting offers is the only way to land deals. I find many new and would-be investors often fear making a mistake and committing themselves to what is probably the largest financial undertaking of their lives. What you should know is that you're not really committed yet. Submitting an offer can easily be done by submitting a Letter of Intent to Purchase. This is not a binding offer; it's just a door opener which shows that you're a serious buyer. The next step is negotiations. If you use the purchase agreement I give you, even if you submit the offer and you find something later you can always get out and get your earnest money back.

Don't Be Cheap

Many new and inexperienced investors make the mistake of doing things they should leave to the professionals. For example, many try to save money on property inspections, property management, legal counsel, and realtors by taking on these responsibilities themselves. I may own over 3 million square feet of commercial real estate, but I always make sure I hire professionals with credentials and expertise in their field for every deal I do. In fact, I make these professionals a part of my team and I benefit from their experience and knowledge.

I also don't scrimp on maintenance and repairs. I train my property management company to jump on tenant issues as soon as they come up. Why? Tenants leave because maintenance issues aren't addressed quickly. I also train my team to be proactive in taking care of property wear and tear like painting, buildings and grounds maintenance and any other issues that affect the image of my building.

Cutting corners on your commercial properties upkeep will not only cost you, but it will also zap you of any time and energy you have left to do other deals.

Don't Do Deals that Shouldn't Be Done

Many inexperienced real estate investors also believe that just because they're making money on a commercial real estate deal, then the deal must be done. That is farthest from the truth! These deals are called sucker deals – anything less than 12% cash-on-cash return is not good. There are also commercial property owners and realtors that will tell you that making more than 11% is virtually impossible in the area you're thinking of. While that may be true, be conservative and look for other deals.

Cash is king in the commercial real estate industry but that cash has to come as a result of making calculated risks based on the property's actual performance; not based on what might happen. You may already have heard horror stories of previous so-called investors jumping in on a deal based on what will happen. Don't get me wrong. There are many speculators who do make money and lots of it, but that's not the kind of real estate deal that many can financially survive. My point is to invest in commercial real estate based on its actual performance; not based on what you think or you're told might happen – the key word is "might".

Taking the failure out of commercial real estate investing comes as a result of setting specific ground rules for yourself as a real estate investor. For example, there are three basic things that inexperienced investors should be careful to avoid: in-action, being cheap, and doing deals that shouldn't be done. Avoid these activities and make this year, your best year ever investing in commercial real estate.


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