As a real estate investor, your goal is to grow a healthy portfolio which will allow you to generate income with a high return-on-investment. There are instances that an offer may come your way which seems too good to be true. In these instances, it is normal to wish to jump on them right away, however, you may need to take a step back. If a deal comes across you that seems too good to be true, it is. These are 3 of the red flags to look for in a Commercial Real Estate Deal.
1. Properties with a heavy price discount
Frequently, time and luck can allow you to purchase a property below its market value. However, there are also instances where opportunities will arise to purchase a property at a significant discount. Most often, this is because there is an underlying problem with the space available, whether it is a structural issue, or something related to the land.
If you are presented with a property that is below market value, it can often lead to significant repair expenses. This in turn can eat away at your bottom line. It is imperative to do extensive research on a property before purchasing.
2. Land prices below market value
Similar to properties that are below-market value, you should be wary about purchasing land that is priced at a heavy discount. If an opportunity arises to buy land at a significant discount, it may have restrictions limiting use. The land itself may also be factory-adjacent, which can make it far less appealing. Even if a factory can be seen far in the distance, you still may be able to smell it from your land. As with purchasing a property at a heavy discount, do your research when there is a heavy discount on land.
3. Opportunities in up-and-coming neighborhoods
Purchasing properties in up-and-coming neighborhoods can be beneficial for real estate investors and developers. However, there is an associated risk that an up-and-coming area may have slow growth. Additionally, zoning laws can slow down the process of establishing new businesses in the area. These two factors can lead to a decrease in value toward your investment.
If you are going to buy a property in an area of opportunity, you must research the area thoroughly to ensure that zoning laws and other factors may not slow growth down. A few key elements to look for are the ranking of the local schools and its sources of municipal revenue. If possible, speaking to other investors and developers to get a feel for where their portfolio lies can be beneficial as well.
There is always a possibility that a seemingly incredible real estate opportunity comes your way. Don’t be fooled by such opportunities; make sure you do your due diligence and know what you are getting yourself into. Like most things in life, if a deal seems too good to be true it most likely is.
Headquartered in Cherry Hill, NJ, and Philadelphia, Pa, Vantage Real Estate Services (Vantage Commercial) specializes in investment sales and acquisitions, multi-family sales and acquisitions, land sales, land development, property management, property valuations, tenant representation, healthcare real estate services, business brokerage, and all other aspects of commercial real estate. Vantage Commercial is guided by the core belief that in order to achieve success, we must think like a client but perform like a partner. We have the optimal team in place to service any commercial real estate project and we work hard to achieve our client’s goals. Each member of the Vantage Commercial team brings a unique background and perspective to the market. Combined, we have tremendous, unmatched experience that shows in our success in the CRE market in New Jersey and Pennsylvania. To learn more about our team, services, or to contact us here.