Poorly Managed Debt Can Lead to Disaster
As long as you stay in the game, your chances of a total loss investing in real estate are slim. However, from my experience, which is also backed up by the data, there is one main way most people get into trouble with their commercial real estate investments – by taking on too much debt. Even if the underlying investment is not all that risky, the addition of too much debt can leave investors vulnerable to downturns- and if they can't make it to the other end of the tunnel, they often face substantial losses.
If you look back, most of the people who got squeezed out of their properties during the various down periods, at least in my lifetime, were right in terms of timing- they just were wrong in their capital structure. People I've interacted with and even worked with have chosen the right buildings in the right areas, with plenty of tenant demand. Their only problem was their inability to stick around in the long run, as well as their failure to avoid foreclosure or a fire-sale of the property due to changing economic tides.
In many ways, commercial real estate investments should be thought of as a marathon, not a sprint, the more you pace yourself and think of the big picture, the more likely you are to see success in your portfolio.
