August 30, 2017
If you have money to invest, read this article. Why? It tells you a number of reasons for commercial Real-Estate being a great investment. Some think it’s the number one investment of all investments.
Let’s get right to it:
1. The Power of Leverage –
*So many commercial Real-Estate properties have multiple units in one location (For example – apartment buildings). Think about owning 16 individual homes spread out throughout the city you live in. Now think about managing these – driving around to all the different locations to rent them and maintain them – or you can purchase a 16 unit apartment complex and have all of the units in one place. Multiple properties in one location give you the power of leverage of your time and money. The cost of maintenance and repairs will be a lot less on the 16 unit apartment building than the 16 unit individual homes. The cost of managing will be less on the 16 unit apartment complex usually about 5% - 7% as opposed the the individual homes about 10%.
*If your property has multiple properties in one location, the properties are all together instead of being spread out. This can be much easier to manage and more cost effective because you have a manager in one location.
2. Great tax advantages for owning commercial property including:
*Your property can significantly increase in value and you don’t pay federal tax on the increase if you take a loan on it to pull your profit out in the future. You can then invest this money in the purchase of another commercial property. Also you can sell your commercial property and do a 1031 exchange to buy a larger property with increased income and not have to pay any tax on this gain. This is a big reason there are so many millionaires that are made from Commercial Real-Estate investment. It’s not real common to find an investment in which your profit is exempt from federal tax and state tax.
*There is a great financial benefit from depreciation of buildings you own, and collect rent for. This is perhaps the greatest loophole in our income tax system. Although property almost always goes up in value over time the government gives you a great write-off for the property depreciation. For example: You purchase an apartment building for $1,000,000. Your annual depreciation will be over $20,000 which you can deduct from your total federal and state income. This is a huge benefit that makes your wealth increase. Investing in stocks and bonds does not have this advantage. .
Owning a commercial property is the same as owning a business. You get many tax write offs.
3. Getting Rich on Other Peoples Money – (those paying you rent), is paying your mortgage payment and other expenses.
How many investments do you know of that will pay off what you owe on an investment?
Not many. This makes it a super valuable type of investment.
Also you get a regular income from other people’s money. This is a very powerful point, and a major reason that so many people who invest in real-estate, become millionaires.
Please keep in mind that commercial real-estate is not an easy-quick way to make money. It is a business, and there are a lot of parts you need to learn and acquire experience in to succeed. It’s a business just as a restaurant, or accounting firm is a business. There is a lot to it. It’s a business that has to be managed well just like any other business. Many people think you just sit back and collect rents. Not so.
4. One type of commercial investment property that is especially great to own at this time is multifamily housing.
Why? Because there is a bigger demand for multifamily housing in the last few years. Many people cannot afford to buy homes, and many young adults want to live in their own apartment for which they won’t have to bother with the responsibilities of property ownership.
A bigger demand for multifamily housing from so many people, results in rents going up faster; thus profits are going up faster too.
Another advantage of owning multifamily properties now is something else that causes profit increase. Increased demand means increased occupancy. Frequently you’ll find occupancy rates of 95% to 100%.
Contact us to see if you pre-qualify for our best multifamily, new construction, rehab, or hard money/bridge loan rate and terms. Also, contact us if you would like to discuss your particular multifamily lending needs, or if you have any questions. Call 214-695-7310, or send an email to email@example.com
Bruce Painter, Director of Marketing, Business Loan Store