Warning Signs of a bad Commercial Real Estate Deal

What are the Warning signs of a bad commercial real-estate deal? What can go wrong at closing?

You’ve negotiated the price, had the property inspected, gotten your loan approved, and the sale is heading for the corner pocket. Nothing could go wrong, right?

As real estate investors, we’ve all heard the horror stories of what could go wrong with owning any sort of real estate property.

In fact, there is no such thing as good and bad real estate, just good and bad deals. I've been doing real estate for almost three decades but even to this day, I still lose money on deals. It's just the nature of the game.

Numerous investors wrongfully expect that after an offer is accepted, the deal will go out as expected, however there are a number of variables and factors that can stand in the way of a smooth closing process. The closing process ultimately decides the success or failure of a given deal. That’s why it’s crucial to understand everything that goes into it. No matter where you are in your career as an investor, you need time and the right focus to familiarize yourself with how to close a real estate deal.

So, you have to make sure you are completely prepared before you sit down at the closing table and begin the deal signing.

Warning Sign #1

The seller or agent forcing you the deal

There are a few properties that seem as bad investments immediately, others are better at concealing their defects. These defects or flaws can be detected at a first glance only if you are not too desperate to invest.

When you are too desperate to invest in a property, the sellers or agents may convince you to invest in the property regardless of all its issues.

And guess what it happens all the time, the beginner or less-experienced investors often get pressured into making a quick decision without fully understanding the ins and outs of a deal.

If you find a property that was built on controversial land, is situated in a terrible neighborhood and has various structural problems, the seller or broker might try to force you the deal which you shouldn't proceed with.

Warning Sign #2

Bad Neighborhood

Don’t make this silly mistake if you are buying for the first time...!!!

Whether to buy a rental property in a bad neighborhood or not is still debatable but if you're investing for the first time then this is not the right time for you to put so much effort for a property having bad surroundings.

A property's value is also dependent on the neighborhood and its surrounding area. The property itself may be in pristine condition but the fact that it is located in a bad neighborhood can make it difficult to sell.

Is it worth buying a cheap property in a flood-zone? Probably not!

Before you finalize any property, have your real estate agent to investigate it from every angle to ensure you’re not making a mistake. 

Warning Sign #3

The Listing Price Is Questionable

The price of a property on sale depends on the market, the seller and its value. Prices tend to reflect value oftentimes.

If you’ve found a listing with a shockingly low price, it’s probably because the property doesn’t have great value. 

Usually properties are priced suspiciously low when they have structural issues that are not seen from the surface. Sometimes, properties with zoning challenges or unpaid property tax bills are also priced low by the sellers.

Warning Sign #4

The Questionable Past

Finding the perfect property can take months or even years, and when you see “the one,” learning that it has foundation issues, multiple repairs in the past can be heartbreaking.

But Trust Me it's the right to just say NO to the deal.

When buying a property, have the habit of inspecting it for foundational damage. You don’t need a vast knowledge on concrete or construction experience. 

There are several dangers and risks that you’ll take on if you decide to proceed with the purchase anyway; although in most instances these problems can be dealt with, the cost, time and stress involved may not be worth it. 

Warning Sign #5

Bad NOI

Investors use multiple metrics to evaluate the profitability and return of a real estate investment. One of the most important is net operating income, or NOI. When investing in commercial properties, the investor must know how the property will perform after accounting for operational expenses.

The NOI can help determine the cash-on-cash return, yield, and even cap rate of a property. Fortunately, there are a number of online tools investors can use to determine the NOI for your investment property.

The reasons for why a deal falls through maybe the fault of the real estate professionals, the mortgage professionals, the buyers, the sellers, or a combination of them all. Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it. 

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