Why should I invest in Commercial Real Estate?, Someone asked me recently. With the well known decline in housing prices in some parts of the country, it can be careful to avoid real estate right now. Fortunately, all real estate is local and San Antonio has actually shown a price estimate, although sales volume has slowed down to just what it was 2005. But commercial real estate is another animal altogether
First, commercial real estate is strict property for companies, ie retail, office buildings, warehouses, manufacturing sites, apartments and land.
Secondly, there is less than home. There are approximately 14,500 commercial properties in San Antonio against maybe 300,000 homes.
Third, commercial real estate is either for the use of a company or for producing an investment return, as opposed to a house you and your family live in.
So why invest in this area? Some of the major wealth in the United States have been based on real estate. Whether its King Ranch or Donald Trump, real estate investment can yield returns far above the inflation rate. Diversification is fundamental to good financial planning and it means dividing your investable dollars into different sectors that will not work the same way. Investments in the stock market, where you can see hours and day to day giraffes in your portfolio, can be stomach proof. The real estate industry rarely happens, so valuations are less subject to daily events and are guided by annual trends of supply and demand. Placing a stake of 5 percent to 15 percent of your investment portfolio in property is a very careful thing to do. This will help stabilize your overall return and real estate can often go in the opposite direction of the stock market. For example, commercial properties repurchased, measured by the equity investment portfolio over the last 10 years, totaled 12.4 percent compared with the SP 500 return of just under 10 percent. Here are the basic ways you make money from investing in commercial real estate
Income Commercial investment properties will be rented to tenants, such as companies and stores. These leases provide rental income for the owner who should generate positive cash flow after the mortgage and expenses have been paid. This can yield an income of 5 percent to 10 percent per annum of the amount you invested.
Depreciation Also known as cost recovery, this tax deduction protects some or all of your income from the expense of taxes. You write about the cost of the building and some of the building components, but not the ground on which it is located.
Share building Since you can use your rental income from your tenants to pay your mortgage, that part of your loan will not be reduced as the principal but not the interest cost the amount of your loan and thus builds your own equity in the property.
Valuation The property becomes worth more money 1 As rental income rises, 2 because the market places a higher value on the rent and 3 when the land value rises. In addition, the value usually increases somewhat in proportion to inflation, so that property is a good hedge against inflation.
Leverage When you borrow money to buy the property, you can control the entire property for a small portion of the purchase price. Then, because your mortgage is fixed, the estimate is increased in the equity of your investment. You can control more property for less money. For example, if you buy a property for 4, with your own 1 and 3, you will be borrowed and the property will go up in value to 5, then sell it, pay back 3 you borrowed and hold 2 left. You have doubled your money when the real estate value rose only 25 percent. And the interest expense of the mortgage is deductible.
You may notice that these five elements of commercial investment constitute the acronym that IDEAL has created by Certified Commercial Investment Members CCIM, Commercial Real Estate Experts, a great way to remember. This is not to say that investment in commercial real estate is ideal, but it may be ideal to help you diversify your investments so that you are feeling confident or lacking it is not linked to only one type of investment such as equities, bonds , gold or oil wells. Spreading your investments into a well thought out range of investments is a very smart thing to do and putting some of your hard earned money into commercial real estate investments can pay for you. What are the three most important things in real estate?
Location It is crucial that it is the essential element of property it is not, in Spanish it is inmobiliaria, the fixed one.