What’s the biggest newbie mistake when buying CRE?
I’m reading books, learning how to analyze deals, finding quality management, doing due diligence, etc.

What should my biggest fear/worry/point of weakness be when buying my first piece of CRE? Cash flow issues? Not being able to pay my mortgage/investors? 

What would cause this investment to fail?
[{"id": "fnat9t3", "text": "A pandemic.", "replies": [{"id": "fncalrm", "text": "You ain\u2019t never lied!", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnav8b9", "text": "Relying on one tenant.  That's why SFRs are risky.  At least with a multitenant, you can lose 1 or 2 tenants for a little while and still make it work. Oh yeah, and a pandemic.", "replies": [{"id": "fnavxnt", "text": "I was aiming for a min of 16 units, how does that sound?", "replies": [{"id": "fnawfpe", "text": "That sounds great. Can you find 16 renters/lessees?  Because right now, it's not happening.  We used to have something called classes of tenants, A,B,C,D but nowadays everyone is a Class D.", "replies": [{"id": "fnaybaf", "text": "Pretty sure hes talking about a multi property.", "replies": [{"id": "fnb2u7d", "text": "Yeah I meant 16 units per property", "replies": [{"id": "fnb43fv", "text": "I would assume multifam?", "replies": [{"id": "fnb4fud", "text": "Yes sorry", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "fnbxi81", "text": "&gt; classes of tenants, A,B,C,D but nowadays everyone is a Class D.\n\ncan you expand upon that?", "replies": [{"id": "fnc7zfl", "text": "Sears is an example of a class A tenant, years ago.  Class D is a local nail joint, or Curves, a franchise that isn't very discriminating.  My point is, no biz is safe from this pandemic.", "replies": [{"id": "fneyrn7", "text": "Sears, RIP.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fnbcw6u", "text": "Wait till shit bottoms out.  six months to a year or two.", "replies": [{"id": "fnbg3o0", "text": "That\u2019s exactly why I\u2019m learning as much as I can now. It\u2019ll be a buyers market in 6 months", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fnbsjhe", "text": "I'd rather own 100 single-family houses than one 100-unit building. An issue with multifamily buildings is that [problems tend to get magnified much more than with single-family rentals](https://triad-city-beat.com/as-apartments-fall-into-disrepair-owner-moves-to-next-investment/?amp). Also it's much easier to sell off single-family houses than multifamily buildings when it's time to sell. I bought a 184-unit apartment complex and it was a pain to sell after 7.5 years, I had to sell with a seller 2nd and still don't have all my money back. I'm staying with single-family rentals now, I like the flexibility and free time.", "replies": [{"id": "fnbx93e", "text": "Yeah but wouldn\u2019t 100 single-family homes take substantially longer to acquire? I\u2019d imagine 100 homes would be much more expensive then a. 100-unit building. And wouldn\u2019t the upkeep be much more difficult then a 100-unit building? Just starting out in CRE myself as I work for a private mid-rate lender. Interested to hear about your experience and perspective.", "replies": [{"id": "fnbzr2k", "text": "I find it much easier to get great investor deals from sellers of single-family houses since they're nowhere nearly as sophisticated and savvy as commercial investors. Also much easier to get them with creative methods like buying them \"subject to\". I'd also rather keep my tenants away from each other so [it's not easy for them to conspire and cause trouble](https://m.facebook.com/story.php?story_fbid=10158394934822052&amp;id=783402051).", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fnc0rtb", "text": "What if it\u2019s an investment grade tenant?", "replies": [{"id": "fnc6jc4", "text": "Is **anyone** an investment grade tenant right now?", "replies": [{"id": "fnc6uqj", "text": "I\u2019d say \u201cessential services\u201d that are investment grade. Walgreens or a large supermarket like Walmart come to mind. Don\u2019t see either going bankrupt or losing money during a pandemic or economic downturn.", "replies": [{"id": "fnc8lee", "text": "I will give you the few and far between 'essentials'", "replies": [], "depth": 5}], "depth": 4}, {"id": "fngfqq9", "text": "Amazon lol", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fnc2amg", "text": "Single tenant, only go investment grade to a strong subsidiary or get a lease guaranteed by the tenant.", "replies": [{"id": "fnc8j4i", "text": "And who praytel is an investment grade tenant right now?", "replies": [{"id": "fnc9em1", "text": "There are plenty. Can you fully count on credit rating from Moody's and S&amp;P? No. But are you better off having FedEx or Dollar General? or Jimmy's meat shack distribution point?", "replies": [{"id": "fnca1ei", "text": "And they'll have the pick of the litter.  But you're a banker, you probably get hardon for that corporate shit. ;p", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fnawi9r", "text": "Cash.  Have enough cash upfront prior to closing.  \n\nIt is a very cash intensive endeavor and not very liquid.  Cash to put down at closing.  Cash to rehab, release, cash to maintain/ reinvest in asset, cash to ride out a pandemic or vacancy turn over.     \n\nGreat vehicle to build wealth, if you can ride it out", "replies": [{"id": "fndu3mo", "text": "Absolutely this.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnayqgp", "text": "Not understanding the risks. \n\nNot doing enough due diligence on the tenant, market, financials, and more.\n\nOverpaying for the property. YOU have to understand what the property is worth, and what value add you can create.\n\nOver leveraging. Debt can be a great tool, or your downfall.", "replies": [{"id": "fnb8ol0", "text": "Watching things collapse right now due to corona and debt being way too high", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnb2bdx", "text": "Not doing your own due diligence.\n\nHire qualified inspection teams etc. Get information on surrounding businesses etc.\n\nIf you think you have enough information, get more.", "replies": [{"id": "fndjvz5", "text": "Related, the biggest lesson my mentor taught me was to knock on doors. I'm an introvert and would have never done this until I followed him around a little. Started doing it on foreclosed SFR and still do it on 50k sq ft industrial. Knock on doors. People love to talk! \n\n\"Hey, I'm thinking about buying the property next door. What do you think about it? What's great about this area? What's annoying? Why do you think it hasn't sold yet? Would you want to rent it?\" etc etc.\n\nYou will learn A LOT. This is before you make an offer. Then you go to the seller/broker, start asking questions, and they'll be scratching their heads about how you know all the dirty secrets about the property.\n\nIf you're buying distressed assets you have to get creative to find out what's really going on.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnb4072", "text": "Believing experts opinions without understanding how experts are compensated in real estate.  \n\n\n* Agents get paid to convince you to buy.  They will tell you rent can be increased or the expenses are high, but they usually have no idea.\n* Mortgage Brokers get paid when you borrow.  \n\nI think you should look at 50-100 \"deals\" so can identify what a good deal is yourself.", "replies": [], "depth": 1}, {"id": "fnb7qv4", "text": "Not raising rents to meet market. Not calculating losses into your equation eg tenants leaving in the middle of the lease.", "replies": [], "depth": 1}, {"id": "fnbholr", "text": "One thing that bit me on my first building was zoning. I skipped the appraisal (huge mistake) because the property was cash flowing and the numbers were terrific. Then I go to refi and find out the building is zoned for 4-units, instead of the 7 I thought I bought.", "replies": [{"id": "fnbpnaa", "text": "Not uncommon for an appraiser to have a limiting condition regarding zoning in an appraisal and they usually state their not zoning experts.  Maybe consult a planner next time.", "replies": [{"id": "fnbxxfl", "text": "What I do now is call zoning first thing before even making an offer. Believe it or not that\u2019s saved my ass a few times.", "replies": [{"id": "fnc09gm", "text": "Yes the municipality is a great resource when there helpful.", "replies": [{"id": "fnchcfm", "text": "It\u2019s kind of nuts but I\u2019ve never met a municipality that wasn\u2019t helpful once you were able to get them on the phone. They\u2019ll give the rules and tell you what is possible vs not. As an example I almost bought two neighboring lots, but decided against it after talking with zoning. Another example - I found out a duplex that I wanted to buy but wasn\u2019t zoned as a duplex and I bailed. Super helpful.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fnbul03", "text": "Lying to yourself to make the deal work. Crunch the numbers and make sure they fit your criteria.\n\nTrusting pro forma numbers. Always run your own numbers or get actual financials.", "replies": [{"id": "fnciqqz", "text": "I think it's hilarious when I give appraisers the seller's pro forma numbers and they just plug them in.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnbxf2o", "text": "Comparing your property to the highest available comps. Is your property THE best in the area? Maybe, but usually that is not the case and you are not being realistic on rental rates / valuation.\n\nRunner up: Trying to sell your property based on what you have into it / what profit you'd like to see after a redevelopment, rather than what price the market will support. The market could not care less if you put more money into your property than you should have.", "replies": [], "depth": 1}, {"id": "fncdh3x", "text": "Everybody above has given you rock solid advice. Don't chase a deal. I had a friend look into a a couple deals and couldn't make the numbers work given the risks involved. He just couldn't understand why the cash flows only worked at 100% occupancy... it took me 3 months to convince him to walk away. \n\nDon't underestimate the cost of tenant inducements, lease commissions, lost rent during tenant changeover, big ticket item repairs... it all adds up. Don't forget to find a lawyer or broker you trust to explain the pros and cons of the terms of the lease agreements and renewal dates and number of renewals left for each tenant.\n\nWhichever property you buy, make sure the property is near you so that you can keep an eye on it. Walk through the building and around the parking lot weekly spotting things to repair or clean up ( you should do this before you buy as well - like surfers who watch the waves from the shore for hours to ensure the waves are worth the effort to swim out past the break).\n\n Pick up the garbage yourself. Clean up cobwebs. Make sure the janitors and landscapers are doing a good job. Inspect the roof at the end of each summer and fix potential leak areas (we started this 3 years ago and it saves us a ton of leaks in the winter), powerwash moss from walkways... all these little things help your tenants which buys you some goodwill. It has worked well for us.\n\nLastly, in some markets like Vancouver British Columbia and the surrounding areas, there are too many people with tens of millions in the bank that will only invest in real estate and so they bid up the price of property beyond what is reasonable. Now, if the pandemic, and social distancing, goes on long enough, we will hopefully pick up some reasonably priced properties again. \n\nGood luck. Be very patient in this market. There will be deals to be had.", "replies": [{"id": "fndlv1t", "text": "\\+1 all of this, especially don't chase the deal and be patient. It can be frustrating when you sink 10, 20+ hours into DD on a property and then you realize why that attractive price is still a bad deal, and there's no way you can negotiate them down to a price that would work for you. You learned something, that was the benefit of those hours...now walk away.", "replies": [], "depth": 2}, {"id": "fndndvw", "text": "I\u2019ve learned the hard way not to force a deal with my brick and mortar businesses.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fnd3oog", "text": "Buying CRE. Stick to residential", "replies": [], "depth": 1}, {"id": "fndt1nt", "text": "1) Not factoring in the cost of your own labor into the investment return.\n\n2) Leasing to crappy tenants.\n\n3) Buying at the top.", "replies": [], "depth": 1}]