Commercial Real Estate Investments: The One Financial Strategy on Most Everyone’s List!

Limit of Land that is zoned for commercial purposes:
Anytime you have a restricted use of land just for a certain type of property you create most likely a higher valuation for that parcel as the years go by. With commercial real estate, this concept is very evident and repeated in most major cities. Major streets and certain areas are utilized for income producing properties and commercial real estate investment surrounded by many residents that support these places of business. The support of the residential community is absolutely necessary to be able to support these businesses primarily consisting of retail and office buildings. Commercial real estate investments require rent to be paid by the tenant to a landlord that allows the landlord to support the building and make a return on their investment.

Income Producing Properties are stable and productive:
These commercial real estate investments are normally occupied by quality tenants that run different businesses supported by the local community. The secret to investing is to choose a growing area that has enough income per family to support the services provided by these businesses. Offices are needed to provide space for the residents to run their businesses that can’t be done in their homes due to zoning restrictions. Commercial real estate investments can be seen, touched and felt by the landlord and not just a stock certificate that can shrink in value over night. The tenant running a business has a lot to lose and a substantial investment both in time and money to make the business work.

So when the landlord chooses a tenant they must check the background and the financial strength of the entity before renting to the business. The safety of commercial real estate investments due to great locations will always provide for the space future businesses need and to replace older ones that may fail due to various reasons.

Shelter and tax advantages are strategic advantages:
Commercial real estate investments offer shelter to income through depreciation of the building that will off-set some of the income generated from the tenant to the landlord. In addition taxes, repairs and other expenses are again off-set against income, limiting the tax burden for the investor. When selling the commercial real estate investments, the 1031 IRS trade rule that allows an owner to trade into an equal or greater valued property for the one sold may prevent the owner from paying any capital gains tax on a profit from the sale. In addition, extra depreciation from the property can possibly apply against other income generated from the owner on other passive income that may have used up their depreciation benefits but still generating cash flow that is taxed. Always check with your own CPA for guidance in tax issues. We are not giving tax advice simply stating possible considerations when buying commercial real estate investments.

Typical increases in rent and triple net structure:
Commercial real estate investments may be structured with leases that require the tenant to pay for all taxes, insurance and repairs to the property which is called a triple net lease.

Thus the landlord simply gets a check in the mail box and has no responsibility for anything to do with the building. Rent increases, called bumps in the lease, are typical paid every few years that range between 7.5% to10% for each period of time passed. This will allow the landlord to keep up with inflation and adds another advantage to commercial real estate investments.