Top Mistakes to Avoid While Buying Commercial Property
Investing in a commercial property can be very rewarding, however, it comes with various risks. (Representative image)
Investing in commercial properties in today’s time shows a promising scope, it offers a steady income, long-term appreciation, and business growth opportunities. Here’s what you need to avoid during the purchase.
Written by Vijay Kamboj:
In today’s modern world, investing in real estate is one of the most solid investments one can make in their lifetime. Estimates show that the Indian real estate sector contributes about 6.5-7 per cent to the GDP of India. And, investing in commercial properties in today’s time shows a promising scope, it offers a steady income, long-term appreciation, and business growth opportunities. However, there are numerous pitfalls that seasoned investors or first-time buyers can fall into. Therefore, it is important to steer through the complexities of commercial real estate wisely and with care.
Overlooking the Condition of the Property
When going out to invest in a commercial space just focusing on the price and location is not enough, it is equally important to have a look at the physical condition of the building or the space. Failing to conduct a thorough inspection can often lead to issues like unforeseen repair costs down the road. If the property you are choosing was previously used for industrial purposes then make sure to have a look at the spaces where raw materials were stored. Usually, those spaces are the worst part of a property and might require renovation soon after you purchase the property.
Overestimating Property’s Income Potential
One major mistake that is seen among first-time buyers is focusing on gross income potential without considering the net income after expenses like taxes, maintenance, insurance, and management fees. Misjudging these numbers can lead to negative cash flow or a return on investment far below expectations. When evaluating a property’s income potential, use realistic numbers and consider vacancy periods, tenant turnover, and potential market downturns.
Ignorance in Zoning and Land Use Restriction
Zoning laws dictate how properties can be used, and these vary significantly from one municipality to another. Some investors mistakenly assume they can use the property for any business purpose, only to find out later that the building isn’t zoned for their intended use. This mistake can cause delays, increase costs, or even halt your plans altogether. Always verify the zoning regulations before purchasing and ensure that your intended business aligns with local land-use policies.
Lack of Financial Guidance
One major mistake that investors often make is taking a loan when planning to invest in commercial property. However, it is important to know that it is one of the riskiest moves. In most cases, lenders will only support you if you have a substantial amount of cash to inject into a commercial property project yourself. While loans can be a useful tool for financing a property investment, it’s wise not to rely on them too heavily, especially when you’re just starting. A balanced approach to financing will help you maintain flexibility and reduce risk in your investment strategy.
In short, investing in a commercial property can be very rewarding, however, it comes with various risks. Therefore, it is essential to take time to plan carefully consult experts, and focus on long-term profitability to ensure that your commercial property investment is a wise one.
(The author is the founder of Bric-X Infra)
