Written by nereal on February 17, 2017
The Benefits of Investing in Commercial Real Estate
There’s a good feeling that comes with owning your own business. But there’s also a good financial feeling that comes with owning the commercial real estate in which your business resides.
There are a number of factors that make commercial real estate a strong investment.
First of all, commercial real estate is a non-residential property that’s used by a profit-making entity. The corner grocery store, a high-rise office building, a farm and the Mall of America are all examples of the wide-ranging rental property.
The benefits to the lessor are equally diverse.
Topping that list is rental income. Finding a residential renter is easier than finding a good business fit for your commercial real estate space, but once the tenant is in place, commercial clients tend to be much more stable and more reliable. Tenants in good spaces, say a retail store or a legal office, are often eager to negotiate longer leases to establish their location and for long-range planning. Residential leases are most often month-to-month propositions after the initial agreement has expired.
Commercial real estate leases are also less heavily regulated than residential leases, which opens up negotiating possibilities for rent increases over time, dividing utility payments and tenant-financed improvements. Lessors can limit their expenses to the mortgage payment while the tenants take care of everything else, including property taxes. This primarily benefits owners who lease to chain stores, but variants of the negotiated lease can work even with single-store renters.
Next is the tax benefit derived from your property.
The U.S. tax system is designed to benefit equity holders, who bear more risk than lenders. Mortgage deductions, depreciation and the ability to write off losses against current income all work to the owner’s advantage. A person who becomes a full-time real estate professional can use a single-year’s losses to lessen or even eliminate tax liabilities in future years. As most people who file taxes know, the system is complex and difficult to navigate. Anyone seriously considering any type of real estate investment should have a trusted tax professional to guide them.
The value of a hard asset is also an advantage. The securities portion of your investment portfolio is much more susceptible to swings in values than a building you can put your hands on and the ground beneath it. Tenants who rely on the eye appeal of the building are invested in keeping the property looking its best. In addition, the building can be used as leverage when you require cash to take advantage of additional opportunities. Over time, real estate has also proven to be a solid defense against inflation.
The value of a commercial building is easier to calculate than the value of a residential property because the income statement of the owner should be available to you if you request it. And, unlike residential property, there’s little emotional value added to the price.
Finally, while a commercial property requires good supervision, business are mostly open during “business hours,” meaning fewer of those middle-of-the-night emergency calls from tenants.
There are also sizable risks involved with commercial properties. They are usually more expensive than residences, and therefore require a larger initial investment. There are liability risks with having additional traffic and pedestrians using your property. There are also zoning issues to be considered, and the challenge of making the building suitable for a new tenant when you have a vacancy.
For more information please contact Nedde Real Estate.
Nedde Real Estate offers commercial real estate in the greater Burlington, Vermont area and beyond. We are a full-service commercial real estate firm specializing in acquisitions, development and brokerage. Grounded in over 28 years of dedicated experience in these fields, the firm was founded by Doug Nedde. Throughout his career, Nedde managed, acquired and developed over 1.5 million square feet of property and was an integral part of the acquisition, conception, permitting, building, marketing and leasing of over 3 million square feet of development, redevelopment and leasing projects.