Everyone makes mistakes, including the best commercial real estate developers. Mistakes come with business ventures, which involve financial and other risks. All it takes is one bad investment to create big financial problems. Here's a look at the top mistakes experienced commercial real estate developers make.
One of the top mistakes experienced commercial real estate developers make is paying too much for commercial property. Sometimes entrepreneurs can mix their dreams with investment capital without a clear plan of how to make an investment property profitable. They may overspend on a property, thinking they'll fix it up, only to later change their mind and end up selling the property for a loss.
A typical problem for an owner of a construction project who hasn't researched costs adequately is that they experience setbacks such as unforeseen delays. Regardless of the reason for a construction delay, it can cost extra money.
There are good reasons to hire experienced designers for construction projects. It is a high risk to pay someone who says they're a designer but lacks sufficient experience. If your design team consists just of young engineers or architects who lack real-world experience, design challenges can slow down your project. Going forward with a design team that lacks expertise can lead to costly design flaws.
Ideally, your design team has worked with many clients and can show you samples of their work. Without a proper evaluation of the team's track record, you're playing with several unknowns. Since any construction project involves spending thousands of dollars, it's best to work with established professionals that have a long track record of success.
Planning a construction project budget must be done carefully to account for surprises such as delays. You should plan on at least 5 percent of the construction costs involving design changes or delays due to bad weather. Failing to factor in these surprises can distort a budget and lead to underestimating costs. Be aware that delays can also occur from a local municipality taking its time to issue permits.
Part of successful budgeting involves managing liquidity. That means having the sufficient cash flow to operate and make acquisitions. You should use cash for immediate expenses while preserving the bulk of your capital for the future. Spending too much money on one construction project can limit what you do with other projects.
Avoid these top mistakes experienced commercial real estate developers make to ensure more fruitful investment in commercial property. Contact us at Parkwest General Contractors for more information about getting construction done right the first time.