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Commercial Real Estate Income Properties Investment: Diversification, Tax Efficiency And Appreciation

Commercial Real Estate Income Properties Investment

The wide and varied choices that an investor has to choose from, along with the tax advantages and possible appreciation of the income properties, attract the most sophisticated investors worldwide to the commercial real estate income property sector.

The biggest names on the billionaire list all have extensive holdings in real estate and have since time began. Below are just a few of the most obvious reasons and selections that you, the real estate investor, has to select from and why.

Remember, there are no guarantees in any investment but your chances increase greatly with proper decisions from day one and commonsense like setting your goals ahead of time and not shooting from the hip.

Commercial Real Estate Investment Sectorscommercial real estate income property opportunities

Triple net retail, warehouse, office, apartments, medical, assisted living, student housing, storage, hotels, land, rental homes, and shopping centers are just some of the main sectors.

There are vast differences between them, but one successful component they all have in common is that purchasing one at the right price and location in the start will most likely lead to great long-term success.

The professional guidance required by an experienced real estate broker, attorney and CPA is essential from day one will put the odds in your favor and make a positive outcome much more likely.

Digging out of a hole by overpaying in the beginning when purchasing in an area that has little chance of future growth just because of a higher immediate return is one of the reasons to be cautious.

Protective Devices Before Purchasing Commercial Real Estate Income Properties

There are numerous protective devices in all categories before making a choice of purchasing the asset during the due diligence period. Let’s look at some of the most important ones.

  • Location of the asset not only from the standpoint of the street and neighborhood but the city and state the property is in. The demographics such as population growth, median income level, employment and housing stats usually one, three and five-mile radius from the property is most important.
  • Visibility and near transportation along with housing and employees retail and services in the nearby area. Ingress and egress with no future negative changes in the roads leading to the property.
  • Type of structure, frame or masonry, generic or special use, old antiquated or new and modern, equipped with the latest features for technology related characteristics such as internet, high speed elevators, amenities, ceiling heights, docks, drive-ins, parking, efficient utilities such as electric power, HVAC, water, sewer, layouts of the interior spaces, open closed, adequate bathrooms to name a few.
  • Tenants that have adequate credit and proper background checks, rent per SQ. ft. charged that may or may not include all common area maintenance taxes insurance and other pass-thru from the landlord to the tenant. Building price per sq. ft. and the land it is on.  It’s also important to view comparable properties in the area and make sure the rent being paid is proper and not too high for the asset class.
  • Leases utilized and their detail such as not allowing early termination by tenants and which party is responsible for what expenses or repairs, insurance or tax increase, caps on expenses if any.
  • Pro-forma that includes all items and not missing important considerations like proper vacancy factors, management and leasing fees, loss of rents, attorney fees, capital reserves for the roof, parking lot and major structural items.
  • Stabilized rents with long-term leases or value-add properties that allow the new landlord to create higher value with improvements, rent increases, new tenants, moving tenants around, adjusting current rents with new leases.

Choose The Right Asset Class

commercial real estate income property choice

Which asset class you purchase makes a huge difference in the way of depreciation benefits taken on the building, not the land, such as residential versus commercial, component part versus the whole structure, 15 years like gas stations or regular commercial buildings over 39 years and residential 27.5 years that shelter your income from income taxes each year.

The final exit, a 1031 exchange can be done to delay your capital gains tax and recapture of depreciation  on your commercial real estate income properties.

Check with your broker and CPA of how this occurs.

When you make the right decision from day one, you have a greater chance of future appreciation taking into consideration all of the points above along with many others not mention here.

Commonsense And Experienced Guidance

Commonsense and experienced guidance with the proper team behind you will greatly improve your chances of success with commercial real estate income properties. Trying to save a few dollars and going at it alone will diminish your outcome in the majority of cases.

Do you want to get involved in the daily activities of the property such as fixing, management, leasing, marketing, bookkeeping or do you want passive income allowing the freedom to do anything you want and pay others to take care of all aspects of the property?

Do you consider your own time less or more valuable to do other things than pay people to help? Do you want to diversify into different asset groups and place less money in different deals or put most of your equity in one deal?

Loans needed or not, and what are the lenders going to require to make you the proper loan with the amount equity you have to work with along with the time structure of the loan and interest rate to give you the margins of cash flow you need to purchase the asset?

With 47 years of experience and past ownership of 3 million sq. ft., I’m in a position to guide and identify the right commercial real estate income properties for you.

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Tags: Appreciation, Commercial Real Estate Income Properties Investment, commonsense, Diverse, Investment, professional guidance, proper decisions, Protective Devices, Tax Efficient