Investing in real estate can be a powerful way to build wealth, but it’s not without its challenges. Even experienced investors can fall into costly traps that hinder long-term success. From overlooking due diligence to misjudging market trends, certain missteps can have significant financial consequences. Understanding these common mistakes—and how to avoid them—can make all the difference in maximizing returns and minimizing risk.

Here are the critical mistakes to avoid:

1. Inadequate market research and due diligence – According to BiggerPockets, 80% of new investors underestimate repair costs
2. Overleveraging and poor financing choices – Over 50% experience cash flow issues in the first year
3. Underestimating all-in costs and cash flow needs – Most investors should budget an extra 15% for unexpected expenses
4. Neglecting professional management and team building – DIY management often leads to higher costs long-term
5. Investing without a clear exit strategy – Nearly 70% of new investors lack an exit plan when purchasing

Real estate investing is not a get-rich-quick scheme. While it offers tremendous wealth-building potential, success requires careful planning, disciplined execution, and avoiding these common traps that have derailed countless investors.

I’m Matt Morgan, a licensed California Real Estate Salesperson with IPA Commercial Real Estate who has specialized in retail and office properties since 2008, helping clients avoid these 5 Common Mistakes that Real Estate Investors Should Avoid through strategic planning and market expertise. My experience in acquisitions, sales, tenant relocations, and value improvements provides a comprehensive perspective on navigating these challenges successfully.

1. Skipping Market & Property Due Diligence

There’s a reason seasoned investors often say “you make your money when you buy” – and it starts with doing your homework. At IPA Commercial Real Estate, we’ve witnessed many Riverside investors learn this crucial lesson the expensive way.

I remember a story of someone who was absolutely certain he’d found the perfect retail space near UC Riverside. His enthusiasm was contagious, but he skipped checking the city’s development plans. Six months after his purchase, construction began on a competing shopping center just two blocks away. The result? His property value plummeted, and finding tenants became nearly impossible.

This scenario plays out far too often. Our research shows nearly 65% of first-time real estate investors rush through market research before purchasing. This oversight typically leads to overpaying based on inflated projections, missing critical zoning restrictions, overlooking environmental issues requiring costly fixes, or failing to spot negative neighborhood trends before it’s too late.

Proper research includes understanding demographics analysis – not just current population statistics, but trends in income levels and employment rates that signal a neighborhood’s direction. It means making night and weekend visits to properties, as areas can transform dramatically outside business hours (that quiet office park might become a rowdy nightlife district after dark). And it requires studying local regulations including zoning changes and development plans that could either improve or restrict your investment’s potential.

One Inland Empire investor shared his painful experience: “I thought I’d found the perfect office building in Riverside. After purchasing, I found out the city had rezoned for mixed-use developments. My expansion plans were instantly blocked, and I had to completely rethink my business model.”

Building a data-driven checklist

The solution to avoiding this common mistake is creating a comprehensive due diligence process. Smart investors develop checklists covering everything from crime statistics and school ratings (crucial for residential and mixed-use properties) to planned developments that might impact property values.

Don’t overlook infrastructure projects like road expansions or public transit changes that could dramatically alter accessibility. Always conduct thorough environmental assessments, title searches to uncover any liens, detailed building inspections, and permit history verification to avoid surprising regulatory issues.

At IPA Commercial Real Estate, we help investors throughout Riverside and Southern California create customized due diligence processes custom to specific property types and investment goals. We understand that what works for a retail investment might not apply to an office building or multi-family property.

Want to dig deeper into location research? Learn more about choosing perfect locations for retail businesses in our detailed guide that walks you through the process step by step. For additional insights on market research, check out BiggerPockets’ comprehensive guide to real estate market analysis.

2. Overleveraging & Poor Financing Choices

You know that old saying, “He who chases two rabbits catches none”? It perfectly describes what happens when investors try to grab too many properties with minimal down payments. I’ve seen it time and again – eager investors stretching themselves financially thin, creating what amounts to a house of cards that can topple with the slightest market shift.

The numbers don’t lie. According to recent studies, about 60% of real estate investors overleverage by taking on excessive debt. This puts them at serious risk of default when the market takes a downturn. For those of us who lived through the 2008 financial crisis, this statistic isn’t just alarming—it’s a painful reminder of what can happen.

When financing commercial real estate, there are three key metrics you absolutely must keep your eye on:

• Loan-to-Value (LTV) ratio: Keep this below 75% to give yourself a cushion against market fluctuations
• Debt Service Coverage Ratio (DSCR): Aim for at least 1.25, meaning your property generates 25% more income than you need for debt payments
• Interest rate exposure: Floating-rate debt without proper hedging can be devastating when rates climb

One of our financing specialists put it perfectly: “The worst mistake I see investors make is failing to stress-test their financing. They calculate cash flow based on best-case scenarios rather than preparing for vacancies, repairs, or interest rate hikes.”

Let’s look at your financing options side by side:

Financing Type	Pros	Cons	Best For
Fixed-Rate Loans	Predictable payments, protection from rate increases	Higher initial rates, prepayment penalties	Long-term holds (5+ years)
Adjustable-Rate Mortgages	Lower initial rates, flexibility	Risk of payment increases, uncertainty	Short-term strategies (1-3 years)
SBA 504 Loans	Low down payment (10%), long terms (20-25 years)	Owner-occupancy requirements, processing time	Owner-operators planning long-term occupancy
Commercial Bridge Loans	Quick closing, less stringent requirements	Higher rates, shorter terms	Value-add opportunities, quick acquisitions

How to structure safe leverage

Leverage, when used responsibly, can amplify your returns without putting you at excessive risk. Here’s my advice for structuring it safely:

Consider SBA 504 loans when they fit your situation – they offer up to 90% financing with favorable terms if you’re planning to occupy the property. Look into interest-rate caps or swaps when using floating-rate debt to protect yourself from skyrocketing rates. Always maintain contingency reserves equal to 6-12 months of debt service – this isn’t being overly cautious, it’s being smart.

Also, structure your loans with refinance windows that align with your business plan, and consider diversifying your lenders to avoid having all your eggs in one financial basket. I can’t tell you how many investors I’ve seen focus solely on getting the lowest interest rate while completely overlooking loan terms that can make or break their profitability:

Balloon payments can force you to refinance or sell at precisely the wrong time. Prepayment penalties might charge substantial fees for early payoff, limiting your flexibility when opportunities arise. Understanding refinance windows – when you can refinance without penalties – is crucial, especially for value-add strategies.

It’s these kinds of details that separate successful investors from those who learn expensive lessons. At IPA Commercial, we help you steer these complex financing waters so you don’t end up swimming upstream when the current changes.

3. Underestimating All-In Costs & Cash-Flow Needs

The money pit – it’s a term that makes experienced investors chuckle knowingly and keeps new investors up at night. In my years working with clients across Riverside, I’ve seen this story play out time and again: a seemingly profitable property turns into a financial sinkhole because the investor didn’t account for all the costs.

According to BiggerPockets, a staggering 80% of new real estate investors underestimate repair and renovation costs, which directly hits their bottom line. Even more concerning, over half of investors face cash flow problems within their first year simply because they didn’t budget properly for ongoing expenses.

When I sit down with new clients, I often see their eyes widen as we walk through the full spectrum of expenses they’ll face. The big ones that frequently catch people off guard include capital expenditures for major systems like roofing and HVAC (plan for 10-20% of your budget here), ongoing maintenance that never seems to end, property taxes that often jump after purchase, and insurance premiums that keep climbing year after year.

Don’t forget about those inevitable vacancy periods when you’re not collecting any rent, management costs that typically eat 4-10% of your gross income, leasing commissions to secure quality tenants, and those ever-present legal and accounting fees that come with the territory.

Crunching the numbers accurately

“Hope for the best, plan for the worst” isn’t just a catchy phrase—it’s the mantra of successful commercial real estate investors.

“The most successful investors I work with in Riverside always underestimate income by about 10% and overestimate expenses by 10-15%,” our investment analyst often tells clients. “This buffer provides protection against inevitable surprises and market fluctuations.”

To keep your investment in the black, I recommend:

• Creating detailed pro forma statements covering all expense categories
• Running sensitivity analyses to see how changes in vacancy or expenses affect your returns
• Using conservative rent projections based on actual market data, not seller’s optimistic claims
• Building in that crucial contingency fund (10-20% of your budget) for the unexpected

Expense categories often overlooked

Closing costs typically run 2-5% of the purchase price. Your operating expenses cover everything from utilities to maintenance to management. Replacement reserves might seem unnecessary now, but you’ll thank yourself when that 20-year-old boiler finally gives out. Tenant improvement allowances are often necessary to attract quality tenants, while ADA compliance upgrades may be legally required when changing a property’s use.

Don’t overlook environmental remediation for issues like asbestos or lead paint, which can quickly drain your bank account. And finally, never underestimate the importance of landscaping and exterior maintenance – they’re crucial for maintaining your property’s appeal and value.

By planning for these expenses from the start, you’ll avoid becoming another statistic in the “cash flow problems” category that claims so many new investors. In commercial real estate, what you don’t know can absolutely hurt your bottom line.

4. Neglecting Professional Management & Team Building

The self-made investor handling everything personally is a persistent myth in real estate. In reality, successful investors build strong teams of professionals who bring specialized expertise to each aspect of property ownership.

“Real estate investing is a team sport,” emphasizes our property management director. “The most successful investors we work with in Southern California understand their limitations and leverage the expertise of others.”

I’ve seen countless Riverside investors learn this lesson the hard way. They start with good intentions – saving on management fees and maintaining control – but quickly find that commercial property ownership demands specialized knowledge across multiple disciplines.

Attempting to self-manage commercial properties without proper experience often leads to tenant relations nightmares, maintenance disasters that could have been prevented, legal headaches from compliance issues, inefficient operations eating into profits, and the kind of personal burnout that makes you question why you invested in the first place.

Common property-management pitfalls

Even experienced investors can stumble into management traps that drain both profits and enjoyment from real estate investing.

Inconsistent rent collection creates precedents that are difficult to reverse. When tenants learn that late payments are tolerated, your cash flow suffers and your authority diminishes.

Deferred maintenance is perhaps the costliest mistake of all. That small roof leak or minor plumbing issue? Ignore it for a few months, and you might be facing a five-figure repair bill and unhappy tenants.

Poor tenant screening can haunt you for years. As one of our clients painfully finded, “The wrong tenant can cost far more than a brief vacancy – in my case, it cost me three months of rent, legal fees, and extensive property damage.”

Inadequate documentation sets you up for disputes and potential litigation. Those verbal agreements about who’s responsible for what? They become your word against your tenant’s when problems arise.

Reactive rather than proactive management means you’re always fighting fires instead of preventing them. This approach is exhausting and expensive.

Building your CRE dream team

Success in commercial real estate rarely happens in isolation. The investors who thrive in Riverside’s competitive market surround themselves with professionals who complement their skills and fill knowledge gaps.

Your dream team should include a commercial broker who brings market knowledge and transaction expertise to the table. They’re your eyes and ears in the market, alerting you to opportunities and pitfalls others might miss.

A skilled property manager handles day-to-day operations and tenant relations, giving you the freedom to focus on strategy rather than unclogging toilets or chasing late payments.

A good real estate attorney is worth their weight in gold, reviewing leases, drafting contracts, and helping resolve disputes before they escalate to costly litigation.

A CPA with real estate expertise can find tax advantages you didn’t know existed and help structure your investments for optimal financial outcomes.

Relationships with commercial lenders give you access to financing options and terms that can dramatically improve your returns and reduce risk.

An experienced insurance representative ensures you have proper coverage for all risks – because the wrong policy or inadequate coverage can wipe out years of gains in a single incident.

Reliable contractors for maintenance and improvements prevent the all-too-common scenario of paying premium prices for emergency repairs or living with subpar work.

A thorough property inspector helps you understand exactly what you’re buying before you sign on the dotted line, potentially saving you from costly surprises.

At IPA Commercial Real Estate, we help investors build these relationships through our extensive network of professionals in Riverside and throughout the Inland Empire. We’ve seen how the right team transforms struggling properties into thriving investments.

Want to learn more about professional property management? Check out what makes a great commercial property manager and find the common property management mistakes when self-managing.

5. Investing Without a Clear Exit Strategy

Did you know that nearly 70% of new investors jump into real estate without a clear plan for getting out? It’s like boarding a plane with no idea where it’s landing – risky business!

“The time to plan your exit is before you enter,” our investment strategist often reminds clients. Without a roadmap for eventually selling or transitioning your property, you might find yourself making emotional decisions when markets turn south or personal finances get tight.

Commercial real estate investors typically consider several exit paths:

• Hold for long-term income: Building wealth through steady cash flow over years
• Sell after value-add improvements: Boosting property value through strategic renovations or leasing
• 1031 exchange: Smartly deferring taxes by rolling proceeds into another property
• Refinance: Pulling out equity while maintaining ownership
• Owner financing: Becoming the bank for your buyer
• Legacy planning: Creating a pathway to transfer wealth to heirs or charitable organizations

Designing flexible exits

The most successful investors I work with in Riverside develop exit strategies that can bend without breaking when market winds shift. Think of it as creating multiple doors out of your investment, not just one.

First, set clear timelines and triggers – specific conditions that would prompt you to sell or refinance. Maybe it’s hitting a certain return threshold or seeing particular market indicators.

Second, prepare for both sunshine and storms by creating scenario plans. What will you do if the market booms? What’s your backup if it tanks?

Third, know your numbers by establishing performance benchmarks. If your property isn’t meeting minimum return requirements, you’ll have objective criteria for making tough decisions.

Fourth, build relationships with potential buyers before you need them. I’ve seen countless deals happen through networks rather than listings.

Finally, stay informed about market cycles. Understanding when to hold and when to fold based on broader economic trends can make all the difference.

At IPA Commercial Real Estate, we help investors craft exit strategies custom to their unique goals, risk tolerance, and market conditions. No cookie-cutter approaches here – just personalized planning that gives you options when it matters most. Learn more about our brokerage services and how we can partner with you for both buying and selling success.

One of the 5 Common Mistakes that Real Estate Investors Should Avoid is failing to plan your exit. After all, how you leave is just as important as how you enter.

Frequently Asked Questions about Commercial Real Estate Investing Mistakes

What role does local market knowledge play in avoiding mistakes?

Local market knowledge isn’t just helpful – it’s absolutely essential for successful commercial real estate investing. I’ve seen how dramatically markets can vary, not just between different cities, but even between neighborhoods just a few miles apart.

Here in Riverside and throughout the Inland Empire, properties in close proximity can perform completely differently based on factors that might not be obvious to outsiders. Local employment drivers, development patterns, and even traffic flow can make or break an investment.

“National trends don’t always reflect what’s happening in Riverside,” explains our market analyst. “While national vacancy rates might be rising, certain submarkets in the Inland Empire might be experiencing the opposite due to local economic factors.”

This is why working with professionals who have deep roots in the community is so valuable. We help investors spot opportunities that others miss while steering them away from submarkets with hidden risks that national data might not reveal. Our team’s collective experience in the Inland Empire marketplace provides insights that simply can’t be gleaned from research alone.

How big should my contingency fund be?

This is one of the most common questions I hear from new investors, and the answer depends on several key factors about your specific property:

The age and condition of your building plays a huge role – that charming 1950s retail center will need a bigger safety net than a property built in the last decade. Similarly, multi-tenant buildings typically need larger reserves than single-tenant properties because there are simply more things that can go wrong.

Tenant quality matters tremendously too. Buildings with less creditworthy tenants require larger buffers since your income stream isn’t as reliable. And in more volatile markets, you’ll want extra protection against unexpected downturns.

As a general guideline, we typically recommend:

• Operating reserves: 3-6 months of operating expenses and debt service
• Capital expenditure reserves: 10-15% of the purchase price for older properties, 5-10% for newer ones
• Leasing reserves: Funds to cover tenant improvements and leasing commissions for anticipated vacancies

“The investors who sleep well at night are those with adequate reserves,” notes our property management director. “They can weather unexpected vacancies, repairs, or market downturns without being forced to sell at inopportune times.”

When should I hire a property manager?

I’ve seen many investors struggle with this question, trying to save money by self-managing properties. While this can work in some situations, there comes a point where professional management isn’t just convenient – it’s financially smart.

Consider hiring a property manager when:

You own multiple properties that are consuming too much of your time, the property is far from where you live, or you’re dealing with complex commercial leases that require specialized knowledge. It’s also wise to bring in professionals when you lack experience with a specific property type or when the property has complicated operational requirements.

“The question isn’t whether you can manage the property yourself,” advises our management specialist. “It’s whether doing so is the best use of your time and skills as an investor.”

Yes, professional management typically costs 4-8% of gross income for commercial properties. But here’s the thing – good management often pays for itself through higher tenant retention, more efficient operations, and preventative maintenance that avoids costly emergency repairs. Managers also provide stronger lease enforcement, access to volume discounts, and reduced legal risks.

One of our Riverside investors shared: “I resisted hiring a property manager for my retail center for two years. When I finally did, they increased my net operating income by 12% in the first year through better tenant relations, more efficient operations, and identifying several service contracts I was overpaying for.”

That’s the kind of real-world difference professional management can make – turning what seems like an expense into a genuine investment that improves your bottom line.

Why Choose IPA Commercial Real Estate?

At IPA Commercial Real Estate, we’ve walked alongside countless investors throughout Riverside, the Inland Empire, and Southern California as they steer these challenges. We’ve seen the successes and the stumbles, and we’ve learned that the difference often comes down to preparation, education, and partnership.

Whether you’re eyeing your first commercial property or expanding an established portfolio, our team brings the local market expertise and personalized approach you need to make informed decisions. We’re not just transaction-focused – we’re committed to building relationships that support your long-term investment goals. Learn more about our brokerage services and how we can help you avoid these common pitfalls.

Successful commercial real estate investing isn’t about luck or timing – it’s about making smart, informed decisions based on solid research, realistic projections, and strategic planning. By sidestepping these five common mistakes, you’re already positioning yourself ahead of the competition.

In real estate investing, sometimes the best deals are the ones you walk away from. Having the knowledge to recognize potential pitfalls before they become problems is perhaps the greatest competitive advantage you can develop.