Top 5 Mistakes in Commercial Real Estate in Los Gatos

Thinking About Investing in Commercial Property in Los Gatos?

If you're considering commercial property investment here in Los Gatos, you're already on the right track. Our town is small, highly desirable, and packed with high-income households, strong foot traffic, and business-friendly appeal. But here’s the thing, even in a great market, investors can still make costly mistakes.

And as brokers who’ve helped dozens of clients succeed (and prevented plenty of “uh-oh” moments), we thought we’d share the top five mistakes we’ve seen and how to avoid them.

Let’s jump in.

Mistake #1: Ignoring Zoning and Use Restrictions

“It’s a commercial property, so I can use it however I want… right?”

Not so fast.

In Los Gatos, zoning laws are no joke. The town is known for protecting its charm and character, which means there are strict rules about what you can and can’t do with a building, especially in the downtown core and historic districts.

We’ve seen investors purchase retail properties thinking they could convert them into offices or residential units, only to find out that the zoning didn’t support that use, or that approvals would take months (sometimes years) to push through.

How to Avoid It:

Always check current zoning and overlay restrictions before making an offer.
Review the town’s General Plan and zoning map, or work with a broker (like us!) who knows what’s feasible.
If you’re planning a redevelopment, understand what approvals you’ll need and how long they’ll take.

Pro tip: If you see a property with a “great location but weird layout,” it might be ripe for adaptive reuse but only if zoning aligns.

Mistake #2: Overpaying Because of Inventory FOMO

“There’s not much available... maybe I should just grab it?”

It’s true, Los Gatos has a tight commercial inventory. But that doesn’t mean you should overextend yourself or skip financial due diligence.

We’ve had clients approach us ready to bid above asking on a property without reviewing rent rolls, tenant agreements, or future cash flow scenarios. That’s a great way to lose money in the long run even in an upscale market like ours.

How to Avoid It:

Request a cash flow analysis, cap rate evaluation, and comparable sales before deciding.
Make sure the numbers still work in the long run even if there’s a short-term vacancy.
Don’t let emotion (or pressure) override logic. Trust the math.

Mistake #3: Underestimating Operating Costs & Repairs

“It’s leased. It’s cash-flowing. What could go wrong?”

Plenty, especially in older buildings.

Los Gatos has its fair share of charming commercial properties, but some of them need love (and money). From outdated HVAC systems to seismic retrofits, hidden costs can pile up quickly.

How to Avoid It:

Hire a licensed property inspector and get a full building condition report.
Budget for CapEx (capital expenditures), even if the property is leased.
Check utility usage, roof condition, HVAC age, and parking lot maintenance. Small things add up fast.

Also, be aware of Los Gatos’s energy-efficiency expectations; solar and EV-readiness are becoming common for tenants.

Mistake #4: Buying the Wrong Asset Type for Your Goals

“It’s commercial, so it must be a good investment.”

Maybe. But what kind of investor are you?

A high-maintenance multi-tenant strip center with retail turnover might not be a good fit if you’re looking for passive income. Likewise, a NNN-leased property with a stable tenant might be too “boring” if you're a value-add investor looking for upside potential.

The key is aligning your property with your financial goals, risk tolerance, and time commitment.

How to Avoid It:

Define your objective: cash flow, appreciation, tax advantages, passive income, etc.
Know what asset types match those goals:
Want simplicity? Look for NNN leases.
Want long-term growth? Try mixed-use or redevelopment.
Want cash flow now? Think small medical or service retail with solid tenants.
Ask your broker to show you different scenarios based on asset type.

Mistake #5: Overlooking Lease Terms and Tenant Risk

“The rent’s solid. We’re good, right?”

Not necessarily.

You’d be surprised how many investors don’t read the lease or fail to dig into the tenant’s financials. A good location with a weak lease or an unstable tenant is risky, especially if you’re planning to hold for the long term.

How to Avoid It:

Review the entire lease, including:
Lease term
Renewal options
Rent escalations
Responsibility for repairs and taxes
Ask for tenant financials if it's a single-tenant property.
Make sure your lease supports your goals, especially if you’re financing.

Final Thoughts: Smart Investing Takes Local Knowledge

The truth is, Los Gatos is a great place to invest, but only if you’re smart about it. With limited inventory, high prices, and strict planning rules, you want to make sure every move is backed by strategy and data.

Avoiding these five common mistakes could be the difference between a deal that drains you… and one that delivers steady returns for years to come.

Let’s Talk Before You Invest

At The Calvillo Group, we help Los Gatos property owners and investors navigate the market with confidence. We’re local, experienced, and committed to helping you make smart, long-term decisions.

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