There are so many reasons to invest in commercial real estate investment or income property I could fill a lengthy book. But let’s just summarize the high points for the majority of investors.
Of course, this outcome is dependent on the investor making a wise decision in the first place, which opportunities they lean toward in order to meet their own goals. Steady income, retirement prospects, appreciation, depreciation, and other tax benefits.
Commercial real estate can consist of many asset groups including the major sectors such as:
- student housing
- assisted living
- value-add in all groups
- special use like entertainment
Many of these groups can be purchased knowing that the average investor does not have to hands-on management or leasing or responsibility for fixing or maintaining the property if they elect not to.
Commercial Real Estate Properties As True Triple Nets
Some properties are structured as a true Triple Net, meaning the tenants are responsible for all expenses such as real estate taxes, insurance, fixing and maintaining all aspects of the property they are occupying. Other investments, you the investor, may be responsible for these items but you hire a professional to do these things for you regardless. The return may be less but you again have nothing to do.
When deciding which asset group you must determine your goals first.
Steady income or longer-term appreciation with large upside potential. Value-add meaning you take on more risk while improving the building, raising rents, adding tenants, increasing the length of the leases or getting a better loan as examples.
Sectors vary depending on the future outlook of the economic climate. More warehouse needed to keep up with business demand or less office for people may work out of their homes. More or less, apartments needed depending on the housing market outcast.
Storage runs with apartments for the apartment dweller needs more room to store their personal items.
- Medical buildings are controlled a great deal by government policies Medicare, Medicaid, and insurance issues. Retail meaning brick and mortar stores along with restaurants can be hurt by the Internet sales or unhealthy food choices that people may stop eating.
- Student housing is related to a growth of colleges and the amenities offered along with the location of the school campus to the housing units. Assisted living memory care is determined by private or Medicare payments, along with the location required by the older population of the area needing the services.
Tax benefits galore help the commercial real estate investor in keeping more dollars in their pockets. Depreciation of the asset offsetting some of the income produced from the properties.
Interest and tax deductions along with 1031 exchange benefits delaying the payment of capital gains tax when selling the assets in the future.
If you are aggressive and need to be a hands-on owner you can spend endless hours improving your investments and perhaps gain greater returns versus simply doing nothing and collecting rental checks and making a nice return but not the optimum one.
Surrounding yourself from the start with an experienced commercial real estate advisor such as Westwood Net Lease Advisors along with a real estate attorney and CPA will lead to better success in the long run and most likely prevent a mistake being made when purchasing and running your investment or income property.
Purchasing in a particular city or state maybe with no state income tax or one that is growing in population or industry job growth or nice climate that attracts the wider population trends might be wise.
Even the particular sector of the city or state is very relevant to overall success. The characteristics of the site itself for things such as egress or ingress, changes of roads or exits, moving of a major company in the area or political changes could affect your future value.