There’s an old joke in the commercial real estate brokerage community that goes something like this:
“A buyer from _________ would buy a community made out of pup tents if he could finance it.”
Fill in the blank with your favored city or area.
Cynical? Yes. True? Without a doubt.
If you’re a real estate investor that people think can be taken advantage of, you probably will be, often times without even knowing it until it’s way too late.
So to avoid losing money in real estate, let’s review the top 4 reasons why most commercial real estate investors fail:
#1 Lucky Not Smart
Many new real estate investors, and quite a few seasoned ones as well, make the error of mistaking luck for smarts. When you’re putting hundreds of thousands or millions of dollars into real estate, Lady Luck will not be on your side for very long.
The funny thing is that many real estate investors deep down do know if they’ve been lucky or smart, but ego and some profits can turn even the most conservative buyers into gamblers.
As a reality check, take a step back and make a written list of everything that you did – or didn’t do – with that successful investment property that you have. You’ll quickly be able to tell whose side luck was on.
#2 Anybody Can Be Successful In A Bull Market
When you’re in a hot real estate market every one is an investment genius. It’s only when the market starts to slow that the winners get separated from the losers. And you do want to have winning real estate investments.
The trouble with hot markets is that they’re often tough to spot. That’s because the media, the government and even your best friends are telling you that business is good and there’s nothing to worry about.
Here’s one great way to tell if you’re in a hot – soon to be cool – real estate market:
When the number of real estate licensees suddenly starts growing, when there are a lot of part-time real estate agents whose day jobs have absolutely nothing to do with investment property, you’re in a bubble that’s going to pop sooner rather than later.
#3 If You Can Finance It, It Must Be A Good Deal
After all, would the bank loan you money if it was a bad investment? Heck yes!
Why? Because they’re going to sell the note shortly after you sign on the dotted line and get it off their books as quickly as possible, that’s why.
Leveraging and OPM are great ways to make money in real estate investing, but just remember that it’s your name that’s going on the dotted line and not your bank’s. Lenders will force you to do a certain amount of due diligence like appraisals, environmental reports, and estoppels – but they’re doing it to cover their butts and to make your loan easier for them to sell.
#4 Most Investors Have No Financial Training
Or if they do, they quickly forget everything that they learned in business school.
It’s easy to get caught up in the heat of trying to buy that investment property you’ve had your eye on when there are multiple offers coming in. Common business sense often falls by the wayside.
Understanding your strengths and weaknesses is the key to success in any business.
That’s why more and more commercial real estate investors are considering passive real estate investing as an alternative to directly owning income producing real estate.
At TwinRock Partners we’ve created the Rock Fund VII to satisfy this demand.
With our company’s proactive management, aggressive marketing and leasing, we can maintain and improve the performance of purchased properties and fully capitalize on future rent and pricing growth while our investors focus on their core business and do the things that