When entering into a new real estate transaction, you must be clear about the figures involved and the potential impact of the decision. But sometimes, the dangers of concluding a transaction are not abundantly clear at first glance. It takes years of experience to spot challenges within investment transactions, and our team can help guide you in avoiding these potentially difficult deals. In this latest post, we’re highlighting the telltale signs that you should avoid a deal.
No Connection to the Local Market
Real estate should be a local proposition in which the investment is connected to the local environment. When the investment team has little understanding of local market dynamics and few local connections, you might think twice about a deal. For example, does the investment group plan to hire a local property manager? Do they have experience in operating properties within the region? Without this experience, it will be difficult to achieve success with the investment.
Aggressive Financial Assumptions
While all investors should be hopeful about the success of their investment in the long-term, pragmatism is still required to ensure hard figures are used and that all investors are on the same page in terms of potential outcomes. Make sure that you have the figures provided by the investment company analyzed by a professional. Question all of the assumptions being made, and discuss the facts and figures with them directly to find out their data sources.
Lack of References
The investment company you work with should have a number of references with whom you can discuss the company’s past work. If you are going to become an investor within a deal, you must ensure you ask the sponsor of the project for their references and for information showing they have the requisite experience and knowledge to secure long-term returns.
Not Identifying Risks
When the sponsor of the investment doesn’t identify the risk when promoting the investment profile, this is a clear sign that there is something not quite right about the deal’s potential value. There is always some element of risk involved in any investment, and highlighting this risk can help ensure that you have the right balance between risk mitigation and investment potential. Ensure you discuss the potential risk of the investment with the group, and make your decision based on the information, or lack thereof, provided.
The Firm Hasn’t Managed Several Cycles
Most real estate investments have performed well in recent years due to the low interest rate environment and the economic growth across North America. Therefore, firms that have only been in operation since 2009 might have only experienced exceptional success. When choosing investment opportunities, look for companies that have an investment history stretching back more than a decade to find groups that can navigate downturns in the market while safeguarding investors.
Our trusted and experienced team can help you review the financing options for that upcoming investment. Apply now and discover your range of loan options.