subject: 12 Laws You Need To Follow ... When Buying Commercial Real Estate [print this page] NO DOUBT you can appreciate, being able to sleep through the night is one of the main objectives for virtually every Commercial property investor.
Which is what a great many real estate investors mention as remaining below your "Threshold of Insomnia".
There could be a number of things which might cause you to lose sleep. One is over-borrowing; and the others are making a poor analysis of the market and the property itself.
Here are 6 Tips on What to DO ...
Always keep enough cash reserves, in order to cover a few months' loan payments -- in the event you were to lose a tenant, or the tenant is merely late in paying for some reason.And have a sharp eye on small things like all machinery and servicing bills, which can quickly add up.
Make sure you possess an investment plan you're happy with, and then follow it. Put simply, set reasonable objectives and go after them. More ambitions have been missed as a result of lack of planning, than through the strategy itself failing.
Get yourself a financial calculator, or access to an excellent software program. And learn to use it to generate a realistic projected cash flow, on an after-tax basis.
Definitely remain up-to-date with various trends within the marketplace. Make sure you keep track of the news and legislation affecting property; undertake courses; attend seminars; and study books on Commercial property. Knowledge will reduce your risks, and improve your profits.
Identify and engage a top-notch team of Consultants (property, legal, finance, building, etc). The money you have to pay them will be more than returned to you, through the transactions they can assist you to put together.
Wherever possible make sure your mortgages don't require that you give a personal guarantee. Consistently strive to make sure they are non-recourse loans.
And 6 Traps You might want to AVOID ...
Do not be tempted to invest a large proportion of your capital into risky opportunities. They may look glamorous as you go in, however they are generally painful on the way out.
By no means undertake transactions on a handshake -- always put them in writing, for your own protection.
Stay away from getting into joint ventures, without taking detailed advice from your consultants.
By no means commit money from the sale of one property to finance yet another, BEFORE settlement on the initial one takes place. Too many "certain deals" have an uncanny habit of coming unstuck.
Steer clear of loans with variable repayments. There are way too many factors outside your control, like a sudden surge in interest rates. Preferably, choose a fixed- rate mortgage. But at worst, have a 50/50 split between a fixed-rate and variable-rate loan.
Shy away from properties that have significant negative cash flows (where by your costs greatly go above the income from the property).The return on equity might be greater; but you can leave yourself rather vulnerable -- a lot like share traders discovered, with their margin calls. Just be happy with neutral gearing; and then maximise your depreciation rewards.
