Here is what the risks are in order. Highest risk to lowest risk:
- Vacancy. Your due diligence period should focus on this. All of the other risks are magnified by vacancy.
- Functional obsolesce. You have to know what your customers want. If it is a bad floor plan you will never be able to rent it. If the commercial space has dock high doors and your customers wants drive up doors, you will never rent it.
- Competition. If you build a storage facility across the street from a vacant piece of land that is zoned for self storage you are asking for a lot of competition.Same for apartments, look for apartments with not a lot of apartments around them.
- Underestimating operating costs. Be realistic about your numbers, get the sellers tax returns. Compare the expenses to seminar business.
- Poor financing alternatives for buyers when you sell. does not matter how good the property. If there is no money there is no money.
- Luck. It’s better to be lucky than smart.
I totally agree with Dave’s assessment here. As an attorney i spent three years reading about all the bad things that can happen when you own real estate. The reality is that sure people so slip and fall and claim all sorts of things but in truth if you are a decent person and a reasonably responsible landlord the risks associated with lawsuits are not material. Things will come up but if you have good counsel and manage this risk it is really just one of the costs of doing business.
Don’t let your real estate agent fool you. Weather a house needs a new roof or not is really unimportant. it is weather you can always keep it rented