Investments are tricky! When you consider ways to put your investment dollars to work do your thoughts turn to commercial real estate investment? If not, it’s time to take a look at this often underutilized tool. For many investors, commercial properties offer the perfect combination of balanced risk, positive cash flow, and equity growth. Let’s take a closer look.
Types of Commercial Real Estate Investments
When you turn to commercial real estate investments, you have a lot of options. The commercial category is diverse, encompassing multi-family units, office buildings, industrial spaces, and retail properties. What all of these property types have in common is that your tenants pay you for the right to use the space. That means that the cash that you generate through rental fees is used for the mortgage. In other words, the tenants pay your mortgage for you.
Not only do the people who rent your property cover your costs, but commercial property owners can also take advantage of significant tax advantages. Depreciation, which can offset taxable income, on commercial property has a much longer life than that of residential depreciation (39 years versus 27.5).
Of course you will still be responsible for taxes on gains you receive on increases in the property value when you sell your investment, but the methods by which commercial real estate is taxed can be a useful financial tool for both short and long term investment.
Find Properties That Appreciate
Another feature that makes commercial real estate an attractive option for many investors is the possibility that the value of the property will increase over time. Appreciation in your investment can be the result of selecting a building in a growing area, or it can come from more proactive initiatives such as capital investment or improvements in the way the building is managed. The point is, while not guaranteed, the value of your commercial real estate can grow over time.
Prepare for Risks
Any investment comes with a measure of risk. For commercial property investors, those risks include the fact that you will need to be prepared to invest a significant amount of money at the very beginning and you will need to comply with the many rules and regulations that come into play with this type of property. There may also be increased wear and tear due to the amount of traffic your building has, particularly in common areas, parking lots and the like.
Depending on your particular financial goals, investing in commercial real estate can have significant advantages over residential properties. With longer leases, more balanced cash flows, and the potential for substantial appreciation, commercial real estate is the right tool for many investors.
Once you have decided to leap into this vibrant sector, do your homework, and weigh the pros and cons. Then be sure to team up with the right real estate professionals at Katchen Company and you’ll be on your way to making your money work for you.