“Why should I invest in commercial property?” Someone asked me recently. With the recent fall in real estate prices in some areas of the country, it may seem prudent to avoid real estate at this time. Fortunately, all real estate is local, and San Antonio has already shown a price increase, despite a slower sales volume than in 2005. But commercial real estate is a completely different animal:
First, commercial real estate is the exclusive property of companies, that is, shopping centers, office buildings, warehouses, manufacturing sites, apartments and land.
Second, there are fewer homes. There are about 14,500 commercial real estate plots in San Antonio for perhaps 300,000 homes.
Third, commercial real estate is to use a company or to produce a return on investment, unlike the home in which you and your family can live.
So why invest in this field? Some of the great fortunes of the United States are based on real estate. Whether it is King Ranch or Donald Trump, real estate investment can produce returns well above inflation. Diversification is essential for good financial planning and this means dividing your investible dollars into different sectors that will not work in a similar way. Investing in the stock market, where you can see the volatility of your portfolio every hour, can be like a stomachache. Real estate is traded irregularly, so valuations are less susceptible to daily events and control annual supply and demand trends more. Placing 5% to 15% of your investment portfolio on the property is very wise. This will help stabilize your general returns and real estate can move in the opposite direction of the stock market. For example, commercial real estate, measured by the REIT index in the last ten years, has yielded a total of 12.4% against SP-500 returns of less than 10%. These are the basic ways to earn money by investing in commercial real estate:
Income: Commercial investment properties will be leased to tenants, such as businesses and retail stores. These leases generate rental income for the lessor that must create a positive cash flow after paying the mortgage and the expenses can generate an income of 5% to 10% per year of the amount invested.
Depreciation: also called cost recovery, these tax credit shelters represent part or all of your income from the tax calculation. You can cancel the cost of the building and some building components, but not the land on which it is located.
Accumulation of stocks: since you can use the rental income that your tenants produce to pay your mortgage, the portion of your main mortgage, but not the interest charges, reduces the amount of your loan and, therefore, generates rights to property over property.
Estimate: the property earns more money 1) the higher the rental income, 2) the market gives more value to the rentals and 3) the greater the value of the land. In addition, the value generally increases proportionally to inflation, so that the property is a good hedge against inflation.
Leverage: when you borrow money to buy a property, you can control the entire property for a small percentage of the purchase price. Then, because your mortgage has been fixed, the estimate is extended in the capital part of your investment. You can control more properties for less money. For example, if you bought a property for $ 4, with your own dollar and $ 3 borrowed, and the value of the property rose to $ 5, you would sell it, you would pay the amount of $ 3 you borrowed and you would keep the $ 2 remaining. His money multiplied when the value of the property increased by only 25%. A mortgage interest calculation is a tax deduction.
You may notice that these five elements of commercial investment are the acronym IDEAL coined by certified members of commercial investment (CCIM) and experts in commercial real estate, a good way to remember them. This does not mean that investing in commercial real estate is ideal, but it may be ideal to help you diversify your investments so that you are retired or not deficient in a single type of investment, such as stocks, bonds, gold or oil wells. Publishing your investments in a well-studied variety of investments is very smart, and putting some of your hard earned money into commercial real estate investments can be profitable for you. What are the three most important things in real estate?
The location is very important because this is the main element of the property, since it does not move, and in Spanish it is “mystery”, immovable.
Time A plot of land located in the northern part of Episode 1604 in 1980 was a farm or a buzz in the famous “Ring of Death”, which is the road to the two-lane farm outside the city. Now, as time passes and the path of growth transcends, Loop 1604 is a 6-lane highway that houses office buildings, shopping centers and restaurants. But you can also find empty land within Episode 410 that was not built at all, growth stagnated in that area and real estate can slow down and timeout. Another example: California residents believed that an annual 15% appreciation is their naturalness now that they have seen the reversed trend. Like most things in life, time is everything and real estate is no exception.
Persons. All properties are owned by someone, and after many years in this business, each property has a history. People who own, buy, sell or use real estate are the real reason to have value or not. People are the true key to value.
Therefore, when considering investing in commercial real estate, it is extremely important to hire a qualified professional, such as CCIM, who can evaluate all these elements and help you make the right investment decision.