In this week’s podcast, I finish up with the top mistakes that high-net-worth investors make when investing in commercial real estate. From focusing too much on returns to not understanding the local market, these big-dollar investors are missing out.
Continuing with our list….
The 4th most common mistake is:
4. Failing to look long-term.
Too often investors just focus on returns. And sure, returns matter. A lot. But high net-worth investors are better off considering the big picture of a deal. Is the return commensurate with the risk? How does the underwriting hold-up to a range of forecasts?
Think about an exit at least seven or years out.
5. Forgetting the taxman – or woman.
If nothing else, HNW investors should focus on after-tax returns. I find these investors think of taxes for a multitude of other scenarios, but when it comes to real estate investing, they aren’t giving the subject enough thought.
Consult with your accountant before you begin the real estate game.
6. Not understanding the local market.
Oh, how many times have I seen this. You get someone who knows the New York City market intimately and they think “Pikeville, NC” will be an easy nut to crack. But not so. There are so many intricacies tied to local situations that can screw up a deal.
HNW investors should listen to local experts. They need a local yokel to walk them through the litany of nuances that make a market unique, or partner with an expert.
7. Ignoring how important solid property management is to real estate investing.
Owning a property is one task, a separate one is managing it. It is all too often viewed by high net worth investors as an afterthought. To maximize one’s investment, a first-class asset manager is worth their weight in gold.
Property Managers and Asset Managers typically charge 3-5% depending on the size of the asset and the complexity of management.
8. Being unprepared for surprises.
The best real estate counselor/advisor will help clients through the trials and tribulations that will often crop up in the most unexpected places.
Those are a lot of mistakes and pitfalls to avoid. If you found that these tips gave you something to think about, reach out to us to learn how we can help you get great results.