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Commercial real estate red flags

| Dec 9, 2020 | Commercial Real Estate

Real estate investors should never forget to conduct their due diligence even if a potential deal appears tempting. There are warning signs that a commercial real estate deal is not as good as it looks and should be closely scrutinized or even avoided.

Heavily discounted price

Finding a commercial property priced well below market value may be a combination of luck and good timing. Or the building or the land may have an underlying problem.

Bit owners may be anxious to unload buildings with major and costly repairs that were ignored or pending, for example. Structures can rest on land that have ecological or health hazards that are expensive to correct.

Land below market value

Land that is priced too reasonably deserves caution. Problems may include environmental protections or restrictions that limit its use. The land may also be near a factory which makes it less attractive. Adjacent factories may also be a problem because of their emissions or noise even if they are not visible from the property.

Up-and-coming areas

Buying on the ground floor of an up-and-coming neighborhood can be profitable and advantageous for investors and developers. But risks are also involved.

The area may be slow with attracting residents and business. Zoning laws could also prohibit new commercial development and construction which can devalue your investment.

Research the neighborhoods in transitional areas if you are interested in investing. Find out how the schools are ranked and its sources of municipal revenue. Speak to other investors and developers and see if they are facing obstacles and complications which may also be placed in front of you.

Before getting to involved in these transactions, you should conduct due diligence to assure that the property meets your needs. An attorney can help conduct due diligence and assure protect your rights in a commercial real estate transaction.