The Ugly Side of Commercial Real Estate That Will Financially Ruin You
Commercial real estate can make many people wealthy but it can also financially ruin someone if they don’t play the cards right. Everyone wants to talk about how real estate made this person and that person a lot of money but you rarely hear how it bankrupts those who don’t look for the red flags.
Commercial laws don’t have the same consumer protection laws that residential real estate has. The professionals at the Local Records Office have created a list of red flags you need to keep an eye out for when investing in commercial real estate because the broker, loaner, and contractor all play a big part.
The Deal
There are many bad deals out there that can ruin a person financially for a generation if the investor isn’t on his or her A-game.
The Broker
The broker is in charge of giving the investor a spreadsheet of how he thinks how the cash flow is going to come in every month but it’s all a “thought” and not a 100% deal. The broker needs to list how the cash is going to come in but he or she is also supposed to show the monthly expenses. If the broker doesn’t do this, that’s a major red flag.
The Loan
Loans have to have low rate costs with low loan points; if any of these are high the loan is definitely not worth it. If the rates are way too high you need to question the integrity of the broker and the firm the broker works for.
The Contract
You need to pay attention to the contract if the contract is written with the seller in mind you need to question it; contracts need to be fair for both parties. Take a good look at the contingencies.
If any of the title contingencies, inspection contingencies, financing contingencies, and appraisal contingencies have expired, you guessed it, you have a bad deal on your hand. What does this mean? It means that if the deal goes bad the deposit is not refundable.
Do Not Sign Anything
Do not sign any legal contract or anything without knowing what you’re going to get yourself into, have a real estate lawyer take a look at the contract first. If the seller says he needs you to sign it before the meeting is over, it’s a major red flag.
When buyers are not aware or don’t read what their signing they will usually get into deeper water with just a signature. Commercial business is a serious business you can’t make excuses and say, “you didn’t know” because everything is on the contract, unfortunately, the scammer will make it difficult to understand. When dealing with commercial real estate you need to be well educated or have a coach that’s been in the commercial real estate business for many years that’s been there and done that type of business.
Being Naïve
Residential real estate has tons of laws that protect the seller and the buyer from scammers and brokers who take advantage of new naïve investors; the downside of commercial real estate is that there are not of laws in favor of the buyer or investor. When jumping into real estate get educated on what your rights are as a buyer, investor, broker, and lender.
