1. Performing Incomplete Diligence
Due to time or other constraints, real estate investors tend to cut the diligence process short and/or don’t perform an adequate level of due diligence when evaluating existing collateral and vertical components.
2. Assuming a Recently Constructed Building Has No Problems
With the speed at which the market is moving, builders rush to complete projects or hire unqualified workers. This often leads to construction deficiencies.
3. Going Outside Their Comfort Zone Without Proper Advisement
Successful real estate investment almost never occurs by happenstance. Successful real estate investment requires knowledge and experience – particularly know-how of geographic markets and property types.
4. Not Calculating Rent Sustainability
The importance of calculating a property’s rent sustainability is often overlooked by buyers. This factor however is particularly important for properties that are located in states where tax reassessments on sales are the governing method of tax payment. Fees can increase by more than $0.75 per sq. ft. purely because of added taxes. It’s not uncommon for this price increase to become too much for tenants to maintain, where added cost may equate to thousands of additional dollars per month that weren’t accounted for.
5. Focusing on Short-Term Noise vs. Long-Term Signals
Getting caught up in short-term “noise” like daily fluctuations in the stock market can be seriously detrimental. Real estate investors need to focus on underlying factors that actually drive commercial real estate returns – factors like employment growth, property fundamentals and capital flows into commercial real estate.
6. Not Building in Proper Deal Contingencies
This may be related to contingencies that address things such as capital needs, lease expirations and possible operational challenges.
7. Chasing “Bad” Deals, at All Costs
It’s not uncommon for investors to get so married to one particular deal that they continue to chase it even though the numbers don’t work.
8. Stretching for Yield at the Wrong Point in the Cycle
This occurs when investor sentiment and investor actions aren’t aligned with each other. For example, investors may believe that the economic recovery is nearly complete and that pricing has peaked, but then buy risky assets in small markets that are likely to suffer in another economic downturn.