Common Mistakes Commercial Real Estate Owners Make

Common Mistakes Commercial Real Estate Owners Make

Commercial real estate is quickly becoming one of the biggest markets in the world and proving to be the most effective way to invest in your future. Adding real estate to one’s portfolio generates diversity and additional security. Yet, selling commercial property has intrinsic complications that residential transactions typically do not include. This could lead to risky and expensive mistakes by property owners. By utilizing the knowledge of seasoned, competent and qualified real estate professionals, you’ll be better equipped to avoid the following mistakes commonly made by sellers:

Limited or Inaccurate Data

The seller must be aware of the market condition to determines whether or when a commercial real estate property should be on the market for sale or lease.  Trying to lease up a property while it is also being offered for sale is a common mistake made by most sellers.

Setting up the contract is one of the most crucial things during the sale process. What goes into your written contract is the entirety of your mutual agreement, and that is what would be enforced by a court if a dispute occurs. Undoubtedly, one of the most significant pieces of information included on a sales contract for the commercial real estate property is its legitimate description. Still, it is shocking how many sellers fail to include a legal description, or they simply don’t bother checking its authenticity.

Double-check or even triple-check and have a commercial real estate agent review your entire description for any sale.


Setting an Unreasonable Due Diligence Time frame

Sealing a real estate sales deal is centered around the stated time frame for due diligence or a contingency period, but usually, when a contract is being drafted, both parties feel the need to conclude due diligence as quickly as possible. This can be a major mistake.  For example, real estate property in California has a lengthy and interesting history, and Texas is a non-recording state, making transfer of title all the more tedious.  It is at times uncertain what lies within the walls and under the foundation of some commercial real estate property, and the buyer requires sufficient time to obtain inspections, surveys, financing and title insurance connected with the property.


Not Knowing Your Competition

This is a rookie mistake which most people make; you should always consider your surroundings. If there is a good deal of vacancy in the submarket, then you had better provide added value for potential tenants, or your competition could set your lease rate. But If the area has low vacancy, and there is limited supply of commercial real estate for rent or sale, then you will have more pricing flexibility.


Not Managing Financial Records Properly

Lenders can kill a lot of deals, as they often use tax returns to confirm the commercial property’s cash flow.  The tax return for the year prior to placing the property on the market is very important. Try to resist the temptation to pile on expenses in an effort to minimize (or eliminate) your taxable income.

You should also categorize your expenses properly. Depreciate all your tenant developments along with capital expenses.  You may also consider the proper timing for a cost-segregation analysis.  It is best to consult with your tax advisor at least a year prior to asset disposition.


Not Putting in the Time

It all boils down to this; if you put in the required time, it will pay off.  Rushing things will never result in a good deal; in fact, hasty decisions could even ruin your deal.  We recommend that you consult a real estate broker before selling or buying a commercial property as they are seasoned professionals who are aware of market conditions and potential pitfalls.  What might seem like a good deal today might turn out to be terrible tomorrow.  And while it’s possible to conduct a transaction on your own, there are likely elements of a sale you may not be aware of, but a commercial real estate agent would.