What can go wrong for the first time CRE buyer?
If I run the numbers and everything looks good on paper, what kinds of things can go wrong so you lose money, or can’t afford the payments? Bad management? Loss of renters? Big repairs? What else? What am I not thinking about before I make my first CRE purchase?
[{"id": "fyibjjv", "text": "A pandemic", "replies": [{"id": "fyiwcft", "text": "Came here to write the same thing... great answer. Who would\u2019ve ever thought!!!", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyidlqs", "text": "Environmental issues", "replies": [{"id": "fyie04r", "text": "Such as? Like asbestos or something? Or you mean like storms and earthquakes?", "replies": [{"id": "fyiecti", "text": "Buried tanks", "replies": [{"id": "fyieoj3", "text": "leaking buried tanks (shudder)", "replies": [], "depth": 4}], "depth": 3}, {"id": "fyifqkg", "text": "Get a phase one inspection during due dilligence even if your lender doesn't require it.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyie29e", "text": "What type of property?", "replies": [{"id": "fyiedli", "text": "Multi-Family", "replies": [{"id": "fyifm1z", "text": "Biggest issues are usually deferred maintenance. Also be aware of issues with existing tenants. Or finding new ones if they leave. \n\nAs others have said, make sure you budget reserves for capex or anything else unexpected. Also don't underestimate time and energy devoted to maintenance/management or hire a reputable company. \n\nGood luck!", "replies": [{"id": "fyigyy2", "text": "Capex?", "replies": [{"id": "fyihdg4", "text": "Capital expenditures. Large eventual costs that you'll have regardless of proper maintenance. Roof replacement is usually the big one. HVAC replacements, water heaters, parking lot repairs etc.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyiezpc", "text": "Not having enough reserves for capex or opex, as the last few months have shown. Capex can kill you, especially on a small building, if you haven't accounted for future repairs.", "replies": [], "depth": 1}, {"id": "fyif87d", "text": "Right now you will be lucky to be able to collect rent. In CA you can not even evict a tenant until like 6 month later.  I get calls on restaurants, barber shop listing which I can not sell.\n\nMost MF one is lucky to get 60 cents on a dollar from rent. I expect some investors will default also.\n\nThis is in urban San Francisco Bay Area.", "replies": [{"id": "fyiflyx", "text": "Yeah I am waiting until after all this Covid bullshit to purchase. Just trying to figure out what to watch for.", "replies": [], "depth": 2}, {"id": "fyig35l", "text": "I'm on the east coast but most lenders have been working with the landlords/owners and offering forbearance or other assistance. The banks don't want the properties.", "replies": [], "depth": 2}, {"id": "fyiqfq5", "text": "Why can't you sell them? Pro forma rent is still there. Also, rookie question, what is MF? Thanks", "replies": [{"id": "fyir45j", "text": "That is a personal preference. Complete shut down Covid 19 deja vu. They talk about cutting and wash hair outdoors and eat in your car. Barbershops have not been open in most counties since March.\n\nMF-Multi family used to be a cash cow. With working from home. Many tenants are working from home in another state. Breaking lease. Demand rent reduction.", "replies": [{"id": "fyit5ft", "text": "Cool. I'm also in the SF Bay Area, but industrial. Thanks for the response. My co-workers who are MF are doing ok now, in mission district / nob hill especially", "replies": [{"id": "fyiupcr", "text": "One of the most desirable neighborhoods. Congrats.", "replies": [{"id": "fyivv9g", "text": "Congrats not to me, but my co-workers. You should be with me and overhear their conversations. Send me a PM and we should link up for coffee/drinks/general commissary", "replies": [{"id": "fyix7gt", "text": "cool", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyige8g", "text": "Bad pro-forma with unrealistic underwriting expectations. If you don\u2019t have a broker, look up and do research on proper expense expectations for your market. Sometimes the numbers aren\u2019t always as straight forward as seller\u2019s project.", "replies": [{"id": "fyiqm4u", "text": "Yeah, this 100%. Bad underwriting will ruin you. Underwrite your own purchases on top of whatever underwriting your broker does.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyijxni", "text": "buying a property could go smoothly with minimal expenses, or you may have to spend tens of thousands JUST to find out the property won\u2019t work...but that\u2019s the only way sometimes", "replies": [], "depth": 1}, {"id": "fyj4fv1", "text": "Have extra money for when shit goes wrong. Because shit will go wrong.", "replies": [], "depth": 1}, {"id": "fymj9cw", "text": "Property taxes. Understand what or how the assessed values could change after purchase for your taxing jurisdiction.", "replies": [], "depth": 1}]