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14 Things
EVERY Investor Should
Know About Commercial
Real Estate
4 Reasons to Invest in
Commercial Real Estate
Cash flow is the most obvious of the reasons to
invest in commercial real estate, and is what people
are generally referring to when they remark about
making “your money work for you.” Whether we are
talking about retail, office, industrial, or multifamily,
commercial real estate investments produce cash
flows and that is what you are buying … future cash
flows generated from rent.
#1. Cash Flow
Principle reduction may be a less obvious reason to invest in commercial real
estate but long term it could be the most powerful reason to invest. The fact is
your tenants who are paying you rent are making your mortgage payments for
you. Their rent is reducing the principal that you owe on the property building
equity and increasing your net worth on a monthly basis.
#2. Principle Reduction
Depreciation is a phantom expense on
the profit and loss statement that
lowers the taxable income resulting in
lower taxes. Currently you can
depreciate commercial property over
39 years and 27.5 years for residential
and multifamily properties. There is
one thing to remember about
depreciation, however, it only delays
taxes and upon the sale of the
property you will pay cost recapture
on the amount depreciated unless you
elect to execute a 1031 Tax-Deferred
Exchange to delay this taxation
further.
#3. Depreciation
Appreciation is simply commercial real estate going up in value over time. This
increase in value can come from the overall improvement of the market,
repositioning of the property through capital improvements or proper
management of the investment that increases the net operating income of the
property. While each asset class of commercial real estate behaves differently,
these four reasons to invest in commercial real estate remain consistent.
#4. Appreciation
10 Helpful Commercial
Real Estate Investing Tips
It is no harder to manage
a large property than it is
a small one. There are
plenty of options available
that will allow you to
leverage your investment.
#1. Think Big
Commercial deals take longer than residential deals. It takes
more time to purchase, renovate, lease and sell.
#2. Take Your Time
People are more familiar
with residential and it is
natural for them to look at
apartments when
considering a commercial
real estate investment.
Don’t overlook
opportunities in office,
retail and industrial even if
it does take you out of your
comfort zone.
#3 - Don’t Choose a
Property by Default
There is a learning curve when you
begin looking for commercial
properties. The process of
screening deals and making offers
is slow at first but will go faster
over time.
#4 - Be Prepared to Spend a
Lot of Time at First
Obtain an
understanding of
Net Operating
Income and CAP
Rates and learn
what is considered
good for your area
prior to making
offers.
#5 - Learn New
Formulas
Because Commercial real estate investments can easily
exceed a million dollars establishing relationships with
lenders and other investors is very important.
#6 - Relationships Are Important
Commercial loans are more difficult to obtain than
residential loans. It is best to interview lenders prior to
making an offer as it will make it easier to qualify for a loan
when you are ready.
#7 - Find Good Financing in Advance
After your offer is accepted you will need to have property
inspections, tests and appraisals to determine if you are
making a good investment. These can be quite costly, but if
the property isn’t what was represented to you it is better to
rescind your offer than to buy a bad property.
#8 - Be Prepared to Lose Due
Diligence Money
Because commercial real estate deals are million dollar
investments having partners helps when qualifying for
loans. Also, you can spread your risk by investing in
several commercial properties rather than just one.
#9 - Partners Are a Path to Wealth
It is imperative that you associate yourself with
experienced commercial real estate professionals
#10 - Know Where to Get
Tough Questions
Answered
Have more
Questions?
CONTACT US:
katchencmopany.com | 303-237-8658

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14 Things Every Investor Should Know About Commercial Real Estate

  • 1. 14 Things EVERY Investor Should Know About Commercial Real Estate
  • 2. 4 Reasons to Invest in Commercial Real Estate
  • 3. Cash flow is the most obvious of the reasons to invest in commercial real estate, and is what people are generally referring to when they remark about making “your money work for you.” Whether we are talking about retail, office, industrial, or multifamily, commercial real estate investments produce cash flows and that is what you are buying … future cash flows generated from rent. #1. Cash Flow
  • 4. Principle reduction may be a less obvious reason to invest in commercial real estate but long term it could be the most powerful reason to invest. The fact is your tenants who are paying you rent are making your mortgage payments for you. Their rent is reducing the principal that you owe on the property building equity and increasing your net worth on a monthly basis. #2. Principle Reduction
  • 5. Depreciation is a phantom expense on the profit and loss statement that lowers the taxable income resulting in lower taxes. Currently you can depreciate commercial property over 39 years and 27.5 years for residential and multifamily properties. There is one thing to remember about depreciation, however, it only delays taxes and upon the sale of the property you will pay cost recapture on the amount depreciated unless you elect to execute a 1031 Tax-Deferred Exchange to delay this taxation further. #3. Depreciation
  • 6. Appreciation is simply commercial real estate going up in value over time. This increase in value can come from the overall improvement of the market, repositioning of the property through capital improvements or proper management of the investment that increases the net operating income of the property. While each asset class of commercial real estate behaves differently, these four reasons to invest in commercial real estate remain consistent. #4. Appreciation
  • 7. 10 Helpful Commercial Real Estate Investing Tips
  • 8. It is no harder to manage a large property than it is a small one. There are plenty of options available that will allow you to leverage your investment. #1. Think Big
  • 9. Commercial deals take longer than residential deals. It takes more time to purchase, renovate, lease and sell. #2. Take Your Time
  • 10. People are more familiar with residential and it is natural for them to look at apartments when considering a commercial real estate investment. Don’t overlook opportunities in office, retail and industrial even if it does take you out of your comfort zone. #3 - Don’t Choose a Property by Default
  • 11. There is a learning curve when you begin looking for commercial properties. The process of screening deals and making offers is slow at first but will go faster over time. #4 - Be Prepared to Spend a Lot of Time at First
  • 12. Obtain an understanding of Net Operating Income and CAP Rates and learn what is considered good for your area prior to making offers. #5 - Learn New Formulas
  • 13. Because Commercial real estate investments can easily exceed a million dollars establishing relationships with lenders and other investors is very important. #6 - Relationships Are Important
  • 14. Commercial loans are more difficult to obtain than residential loans. It is best to interview lenders prior to making an offer as it will make it easier to qualify for a loan when you are ready. #7 - Find Good Financing in Advance
  • 15. After your offer is accepted you will need to have property inspections, tests and appraisals to determine if you are making a good investment. These can be quite costly, but if the property isn’t what was represented to you it is better to rescind your offer than to buy a bad property. #8 - Be Prepared to Lose Due Diligence Money
  • 16. Because commercial real estate deals are million dollar investments having partners helps when qualifying for loans. Also, you can spread your risk by investing in several commercial properties rather than just one. #9 - Partners Are a Path to Wealth
  • 17. It is imperative that you associate yourself with experienced commercial real estate professionals #10 - Know Where to Get Tough Questions Answered