Commercial Real Estate – Avoiding Common Pitfalls

Commercial real estate as an investment can provide great returns, but it can also cause some serious headaches if you do not do your homework and go into the deal with your eyes wide open. Commercial property can include residential multiplexes and apartment complexes as well as more traditional business and warehouse buildings. Whether you are buying commercial real estate for profit or simply to house your own company, before you buy you should do all you can to avoid the following common pitfalls.

Have a Thorough Title Search Performed

Before making any real estate purchase, whether it is residential or commercial it is essential to get a complete title search to identify any liens or other problems with the title. The title of a property is basically the history of the deed changing hands and whether or not there are any unresolved claims to the deed by previous lenders or contractors.

A title company can research the entire history of the deed from the first loan ever made on it and make sure that any liens against the property have been paid off. They also need to make sure that no one has prior claim on the property because loans or services were not completely paid for.

Understand All the Loan Terms

There are many important terms and clauses included in a commercial real estate mortgage contract. Some of the fine print may interfere with your plans for the property.

For instance, many real estate loans require you to keep your net equity up to a specified level at all times, and other call for large financial penalties if you pay off your loan, either by paying off the principal or by refinancing, before the designated years are up.

Be sure you understand exactly what your lender is requiring of you and that the terms match your own desires as well before you sign your name on any dotted lines.

Avoid Zoning Problems

There are lots of laws and statutes governing the use of land for certain purposes. If you want to operate a business in your commercial real estate, you will obviously need to make sure to buy a property in an area that is zoned by the city for business.

You should also check the surrounding areas to see how they are zoned and if the location is accommodating enough to bring in all the traffic and customers you are hoping for.

Plan for Market Fluctuations

There are no guarantees in the real estate world. The value of both residential and commercial properties is subject to ups and downs based on economic conditions and on changes in nearby development.

You have to be prepared for fluctuating tenancy rates if you use your real estate as an investment property, or for possible changes in customer base and the values of properties around yours.

All of these factors influence the worth of your real estate as well as your ability to make your mortgage payments. Make sure you choose a property that you can easily afford even during months (or years!) when the economy is not in your favor.

Using Web Sites to Help Your Real Estate Business

Good real estate agents agents are experts in their industry and are servants for their clients. However, just because you are good at what you do means your customers believe in you.

Especially in the current market, in this housing slump of 2008, you need to do everything you can to ensure your customers have 100% faith in you.

One excellent way is to have a web site. However, just throwing up anything on the web and calling it your own can have the opposite effect. Web sites are good at giving you credibility, but if it looks like your neighbor’s kid put it together, your clients may wonder if you are really legitimate. So here are some tips to make sure you create a site that is professional and works for you without breaking the bank.

  1. Don’t use free website tools. The old saying you get what you pay for typically applies. Think of your own industry here. The FSBO services seem good because they are free, but in reality you are missing out on the benefits of working with an agent. Same holds true here. If you go for something free, you are very likely to create a pile of junk that nobody wants to visit.
  2. Buy a .com domain name. Keep it simple, if your name is available, make it yourname.com. If you work for a small company, try your companyname.com. If that’s not available, you can always add the city name in front or behind your company. For example NYCcompanyname.com OR companynameNYC.com. Use whatever has a better ring to it. Don’t use a .net or other domain extension. The standard is .com. You don’t want someone typing in .com when in reality you are .net and going to another business, or worse, a spam web page.
  3. Get a professional logo. Your logo is your brand. Even if you go by your name only or work with a company like ReMax, you should have your own logo. Why? Logos build credibility, and are unique to your business. That way when clients see a logo they think of you. Logos don’t have to be expensive.
  4. Hire someone to design your site. There are great, cheap tools that come with many hosting/domain companies like Network Solutions or Go Daddy, but if you use the generic free templates you will look generic and not professional. Again, this is something that you don’t have to pay an arm and a leg for. Many times you can get away with paying just a few hundred dollars up front.
  5. Put your web site on your business card. Once you have a nice site, be sure to get it out there. Get it on your business card and other marketing materials. This will be one more outlet for you to show off your new site, and build up that credibility that you need.

Starting a Career in Real Estate

“I did it! I made it through that 60 hour class, aced my final exam, bit my nails all the way to PSI and hugged the computer when ‘PASS’ showed up on the screen. YES! You can’t tell me nothing now! Companies are already ringing my phone off the hook trying to get me to come sell real estate for their firm. Wait till I tell all my family and friends. Business will start coming from everywhere. I will be able to quit my job and begin building my real estate business NOW.”

The challenge is to keep up that level of enthusiasm while writing an effective business plan and preparing your interview questions to determine which firm is best for you.

When the honeymoon is over and you love the company you’ve chosen, the training begins again. You quickly realize that everything you had studied and “aced” on that exam tells you very little about the forms and process that you must follow to help your clients buy or sell. How do you even get into the house? Who is going to hold my hand to make sure that I do all of this right? Your broker.

Your broker should be one of your best business resources.

Your broker has years of experience and training in many aspects of the real estate transaction. Your broker will also have many resources available for you to gain more knowledge and become successful. Review your business plan with your broker. This business plan should include financial planning for expenses such as association dues, MLS access, E/O insurance, marketing and advertising.

Training and education must be budgeted in the finance as well as the activity sections of your plan. Take advantage of all of the training that your broker provides, as well as attending Alpha College of Real Estate courses for the most up-to-date information in this ever-changing business.

Prospect for Clients. Your business plan will direct what marketing vehicles you will use to create your image and market your product. That product usually begins with YOU marketing yourself and your services. Take advantage of any marketing discounts that your broker has negotiated for the company and look into other effective advertising and social media options.

Education will be the key to your continued success. You are required by law to earn a certain amount of credits every two years to renew your license. Make the most of those credits. I would encourage you to earn designations such as ABR®, e-PRO®, CRS®, GRI, SRES® and others, depending on the direction you take your business.

Be in it to win it. Participate in your company’s functions and activities. Preview lots of properties and familiarize yourself with neighborhoods and inventory. Read industry news and reports. Hold “Open Houses”.

Get involved with HRRA; there are activities, council and committee meetings weekly where you will be able to network with other real estate professionals and learn a lot. Stop by the association office and ask for the “New Agent Guide”.