Investing in residential properties is often what comes to mind when someone thinks about purchasing real estate, but there is a bigger, broader side to the market that may interest you. You should also consider the positive aspects of owning a commercial real estate building. Not only are businesses growing and expanding, but more startups need a place to thrive such as warehouses, office spaces, and storefronts, and it could be your property that is the perfect fit for their company. There are also multi-use buildings that are commercial on the ground level and residential above. Or you can choose strictly commercial apartment dwellings for a great investment. Here are just a few of the many benefits of investing in a commercial property.
You may have noticed that most property value has increased in the past 30 years, and so have the buildings on that land. When you purchase a property, you may be looking for a long-term investment that offers a chance to increase significantly in value over a short time. When Steven Taylor landlord, a commercial property owner, was asked, “What are the things investors look for in purchasing a distressed large apartment complex?” his reply was right on point. He stated, “They look for an opportunity to capture value by investing in building systems, capital improvements and/or primary renovations which ultimately lead to increased revenue.”
Division of Loss
When you purchase a commercial business complex building or multiple business dwelling, your operating costs are covered whenever there are vacancies in the property, and that can be a huge benefit when it comes to covering monthly bills. When one company moves out, the other businesses are still contributing to the overall expenses you have on the building. Not only that, but the tenants are also responsible for common area fees, taxes, and other building expenses.
Over the past decade, the reported average yield on commercial real estate investments has been between 7 percent and 15 percent – much higher than stocks, bonds, and other investments. Office spaces in the suburbs are reported as offering the highest return, with apartment buildings ranking in the middle of the reported spectrum. It is interesting to note that warehouses and empty commercial land plots are reported with the lowest invested return, but they also appear to have the most extended longevity of all the investments.
The tax code on commercial real estate is a complex issue for first-time buyers, and it is recommended that owners always speak with a professional when it comes to filing taxes. There are a few simple benefits almost all commercial property owners benefit from though, including depreciation deductions and mortgage interest. These tax shields can provide income protection for a large portion of your profits.
Individual family dwellings often have leases that run for 12 months, and frequently the family leaves when the lease expires. For commercial buildings, the opposite is true. Long-term leases are one of the biggest of all benefits in owning commercial real estate. Tenants want a secure address they can market their business from, allowing you the security of a regular, protected income stream.
It doesn’t matter much what the stock market does when your money is invested in commercial real estate. That is because it is unlike any other investment class in that it is essentially a hard asset with its own intrinsic value. The structure built on the property has value, but the land itself is also of value – sometimes worth many times what the building atop is worth. There is long-term security in land ownership.
Far beyond the positive side of commercial property ownership comes the pride associated with owning a piece of the business world and being a benefit to that world. Without commercial buildings and their owners, there would be far fewer entrepreneurs following the American dream.