The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
One common mistake seen often in the realm of investing in multi-family real estate is severely underestimating the challenges that come along with challenging properties. When a deal looks like it’s too good to be true, it very well might be, and turning the property into one that generates income could take far more work than you think. Before taking a seller up on an incredible deal, make sure the property isn’t too much of a challenge first.
Richard Wilson: What is the most common mistake made by those investing in multi-family commercial real estate?
Brian Burke: I think it’s when people underestimate the challenges involved with investing in challenging property. So often times you’ll see “Oh, the property is 50% vacant, and we’re going to go in there and we’re going to renovate it, and we’re going to make this class A property out of it.” and you dig in and you find out well somebody’s gone in and stolen all the copper out of the vacant buildings, and the windows are boarded up, and nothing has happened in that neighborhood in 20 years, and there’s no growth. People can really underestimate how difficult it is to turn around a challenging property in a challenging location and they tout it as being the greatest deal in the world, “We got a steal on it! It’s a 15% cap rate, you’ve got to invest in this!” and it can just be a total disaster.
Richard: Right, great.