The Truth Behind 7 Commercial Real Estate Myths

Commercial real estate myths have the power to end an investor’s career before it starts. 

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Misleading, confusing, and often scary, they can feed into any doubts that a buyer might have and persuade them not to pursue a potentially lucrative deal.

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Yet, with knowledge comes power. 

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Anyone interested in investing in property, from first-time homebuyers to experienced professionals, should first educate themselves about the falsehoods that plague the real estate market.

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 For corporate investors in particular, doing this as part of a commercial real estate analysis will help avoid costly mistakes and secure more profitable opportunities.

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Read on to find the seven most common real estate myths to look out for in the CRE sector and the truth that lies behind them.

A lack of available EMD funding is another real estate myth. Join Duckfund’s 4,000+ happy customers who have used our fast and flexible Sign Now Pay Later model to secure amazing CRE deals.

7 of the most common commercial real estate myths debunked

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Myths about real estate cover many areas of the CRE industry, from buyer’s agents to property upgrades, but knowing how to spot them is a useful quality for an investor to have. 

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Here are 7 of the most common real estate myths and the truth behind them.

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Myth 1: You don’t need a brokerage or real estate agent

The idea that you can navigate the complex world of real estate without a broker or real estate agent is a common misconception.

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Technology may have streamlined many aspects of the buying and selling process, but the expertise and guidance of a real estate professional remain invaluable.

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Relying on your own efforts is a risky move for several reasons. First, brokers and realtors have local market insights that will help you secure the best deal, whether you’re a buyer or seller. 

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Second, real estate professionals have access to the Multiple Listing Service (MLS), a database of properties for sale that isn't fully available to the public. They also have a network of fellow lenders, inspectors, and title companies that they can tap into to help you execute your deal smoothly. 

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“Most commercial real estate brokers have substantial social capital”, says Phil Tomlinson, CRE broker at Arizona-based Commercial Properties, Inc. “They can give you access to direct links that can assist you financially to arrive at competitive rates and better deals”. 

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Brokers and agents also offer guidance to help clients make informed decisions and handle complex paperwork. They assist with pricing strategies and also excel in marketing properties, using tools like professional photography and targeted advertising to attract buyers. 

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Finally, they provide legal and contractual expertise, negotiating contracts to protect their client's interests and ensure a smooth closing process. 

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Myth 2: Price your property higher so you’ll have room to negotiate.

A common real estate myth is the idea that pricing your property higher gives you room to negotiate. While this may seem like a good strategy, it often backfires in a competitive market. 

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“Some property owners believe that they can always ‘start high’ on price and come down to a lower figure when they have to”, says CRE expert John Highman. “The reality of the situation is that an overpriced property will create little enquiry; it will ‘kill’ the property enquiry before any occurs”.

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Overpricing a property can deter potential buyers, who may perceive the listing as overpriced or inflated. 

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In today’s market, where buyers are increasingly informed and market conditions change rapidly, listing at an unrealistic asking price can lead to prolonged vacancies, lower return on investment, and even a reduction in the property’s perceived value.

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Buyers are well-equipped with tools that allow them to understand home values and determine fair prices, and many have pre-approval letters in hand, ready to seal the deal.  

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When the listing price is too high, the property often becomes stagnant on the market. The natural reaction from the seller is to reduce the price, but this could give potential buyers the impression that there’s something wrong with the property. 

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The truth is that pricing your property competitively from the outset attracts the right buyers and increases your chances of getting a fair sale price.

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A well-priced property not only draws interest but also fosters the trust you need for smoother negotiations.

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Myth 3: There are limited value-add opportunities

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It’s tempting to look at the limited value-add potential of some types of commercial real estate and paint the whole industry with the same brush, but there are several ways to enhance the value of CRE properties.

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Converting unused or underutilized space into dividable rentable areas is a straightforward strategy to increase its purchase price and generate additional income.

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Transforming storage units into functional office or industrial spaces can attract tenants willing to pay higher rents.

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Commercial properties can also generate new revenue streams that you can’t get in a typical residential unit, such as more parking spaces, storage units, or even installing on-site ATMs or vending machines. 

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Residential homebuyers may have well-trodden home improvement renovation strategies, but the litany of commercial options open to CRE investors means they can quickly add value to their space following their purchase.

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This potential is reflected in a shift in global value-add funding in 2024. A pullback in residential investment saw more funding channelled toward industrial spaces in the first quarter of the year, according to research from real estate publication PERE.

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                    The shift from residential to industrial value-add funding

                                                Source: PERE

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Getting hold of the right commercial property development finance is often a central strategy for developers who seek to maximize the value-added potential of their investment.

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Myth 4: Commercial property inspections aren’t as important as residential checks

People often assume business properties are more robust and less prone to issues that affect residential properties, but this isn’t true.

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In reality, thorough inspections are just as critical, if not more so, when dealing with commercial properties. Residential home inspections typically focus on structural issues and HVAC, plumbing, and electrical systems, yet commercial inspections often cover other factors such as zoning regulations, environmental concerns, and compliance with safety codes. 

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“Regular commercial property inspections help prevent small issues from becoming major problems,” says Trevor Henson, CMO at Beach Front Property Management in California. “ For example, if a minor plumbing issue is identified during an inspection, you can have it repaired quickly, preventing water damage or other costly repairs down the line”.

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Neglecting a commercial property inspection can also result in legal trouble and fines if it doesn’t meet local regulations. Commercial properties typically have more complex systems and higher potential liabilities than residential properties, so investors and developers must understand the full scope of what they’re purchasing. 

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Myth 5: Commercial real estate properties don’t grow in value

The 2022 CRE market correction put many people off investing. 

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Second only to the 2008 financial crisis in the biggest price drop in the last 50 years, it led to many seeking other investment sectors with a growing belief that commercial real estate was simply too risky. 

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Yet a quick look at the figures shows CRE to not just be a solid long-term investment, but a lucrative one. 

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Since the year 2000, there’s been a 5x spike in value, even after taking the recent correction into account, according to NCREIF data. 

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    Source: National Council of Real Estate Investment Fiduciaries (NCREIF), via JP Morgan

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This real estate myth may be down to investors focusing on just one area of the CRE market, rather than the industry as a whole. 

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“One of the reasons for this myth is that growth sometimes happens in different cycles to the residential market”, says CRE expert Steve Palise. “Things like high-density office spaces will not grow the same as a freestanding warehouse (similar to how apartments do not grow the same as houses).”

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Investors and developers should instead take into account the whole CRE industry picture, before making a decision. “There are plenty of factors that contribute to CRE capital growth, but one of the most important is rental income”, Palise continues. “The value of a commercial property is largely tied to the amount of rental income it generates.”

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Myth 6: Bargains are impossible to find

Many investors look at some of the high prices bandied around the CRE industry and assume that finding a bargain is impossible. 

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Yet, like all investment industries, commercial real estate has up-and-down cycles. Buying during a period of lower prices makes it more likely to land a great deal. 

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You can also find bargains when the market is up, of course, by investing in distressed properties or finding a motivated seller.

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However, bargains are also possible when you think outside the box. Consider, for example, parking lots. Ploughing money into empty concrete spaces may not seem like a great idea, but creating parking facilities can be a highly profitable venture.

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Parking lots offer several compelling benefits: high demand, versatility (e.g., renting out for special events), minimal upkeep, scalability, and the potential for land value appreciation. These properties are low-maintenance yet provide reliable cash flow, making them an attractive investment.

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The parking lot industry has seen a steady growth in revenue since 1998 and has shot up since 2020 following the shock of the pandemic. IBIS World, a market research company, expects the market size to continue to increase between 2024 and 2029. 

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                                  The rising revenue from parking lots (US)

                                             Source:  St. Louis Fed

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As cities become more congested and demand for parking spaces rises, the potential for parking lot investments continues to grow. 

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The key to recognizing the next bargain is to become a student of the commercial real estate market so that you are ready to strike when the next growth opportunity comes along.

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Myth 7: You need a ton of personal capital to secure a deal

The idea that you need a ton of personal capital to secure a deal is a common misconception in commercial real estate.

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In reality, this isn’t true, as there are various financing options available to investors with limited upfront capita. These  don’t have to come from traditional sources, either: mezzanine financing, P2P lenders, and even crowdfunding platforms allow buyers to pool capital with others so that they can invest in commercial properties without needing a large personal stake.

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Another perceived stumbling block, finding the down payment or earnest money for a deal, can also be cleared with creative new lending options. One model allows buyers to ‘Sign Now, Pay Later’ so that they can secure a property without putting any of their personal capital down. 

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They can even work on multiple deals at once thanks to the model’s fast and collateral-free approach, and they don’t need a sky-high credit score to make it work.

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Fast funding has proved to be a competitive advantage for CRE investors, according to Anna Kogan, founder CEO and founder of earnest money financing platform Duckfund. “Moving quickly is essential in securing deals. It’s that simple”, she says. “Having readily available capital for earnest money deposits gives you the edge you need to stand out among other investors.”

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So, while a personal supply of capital helps, it isn’t the make-or-break factor that many paint it to be. Securing a deal often hinges more on understanding the property and current market conditions, and having quick access to financing options.

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Ready to see how Duckfund’s Sign Now Pay Later model can secure your next deal ahead of rivals? Contact us today to see how you can get EMD funding in just 48 hours.