The Benefits of Investing in Commercial Real Estate

/in /by

Introduction to Commercial Real Estate Investing

Types of Commercial Real Estate

Commercial real estate is a broad term that encompasses various types of property designed for business purposes. Some common categories include:

  1. Office buildings
  2. Retail spaces
  3. Industrial properties
  4. Multi-family properties (5 or more units)
  5. Hotels and hospitality properties
  6. Mixed-use properties

Each of these property types has its unique characteristics, advantages, and risks, making it essential for investors to carefully consider their investment goals and strategies.

Why Invest in Commercial Real Estate?

Commercial real estate has long been considered a lucrative investment option for individuals and institutional investors alike. The potential for stable cash flows, tax benefits, and portfolio diversification are just a few reasons why many investors consider adding commercial properties to their investment portfolios.

Benefits of Commercial Real Estate Investing

Steady Cash Flow

One of the most attractive benefits of investing in commercial real estate is the potential for steady cash flow. Commercial properties typically have long-term leases, often ranging from 5 to 10 years, which can provide investors with a reliable income stream. Additionally, commercial tenants are usually more financially stable than residential tenants, reducing the risk of missed or late rent payments.

Appreciation Potential

Commercial real estate properties have the potential for significant appreciation over time. As the surrounding area develops and demand for commercial spaces increases, the property’s value can rise, providing investors with substantial capital gains.

Portfolio Diversification

Investing in commercial real estate can help investors diversify their portfolios, spreading risk across different asset classes. A well-balanced investment portfolio can reduce overall risk and improve long-term returns.

Tax Benefits

Commercial real estate investors can take advantage of various tax benefits, including depreciation deductions, mortgage interest deductions, and the ability to defer capital gains taxes through a 1031 exchange. These tax benefits can enhance the overall return on investment and reduce an investor’s tax liability.

Hedge Against Inflation

Commercial real estate investments can act as a hedge against inflation. As inflation occurs, the value of real estate typically increases, and rental income often rises along with it. This can help protect investors’ purchasing power and maintain the real value of their investments.

Factors to Consider Before Investing in Commercial Real Estate

Location

Location is a crucial factor in the success of a commercial real estate investment. Investors should research local market trends, demographics, and economic indicators to ensure the property is situated in an area with strong growth potential.

Property Type

Each property type has its unique advantages and challenges. Investors should consider factors such as tenant demand, vacancy rates, and required property management expertise when selecting a commercial property type to invest in.

Market Trends

Understanding market trends is vital for making informed commercial real estate investment decisions. Investors should research factors such as employment growth, population growth, and overall economic health of the area to gauge the potential for future property demand and appreciation.

Financial Analysis

Performing a thorough financial analysis is crucial before investing in commercial real estate. Investors should evaluate metrics such as cash-on-cash return, capitalization rate, and internal rate of return to determine the potential profitability of a property. It’s also essential to factor in expenses such as property management fees, maintenance costs, and vacancy rates when analyzing an investment’s financial viability.

Conclusion

Investing in commercial real estate can offer numerous benefits, including steady cash flow, appreciation potential, portfolio diversification, tax benefits, and a hedge against inflation. However, investors should carefully consider factors such as location, property type, market trends, and financial analysis to ensure they make informed investment decisions. With thorough research and planning, commercial real estate investments can provide long-term wealth-building opportunities.

Get started with Crowdfund Builder today!

FAQs

1. What is the difference between commercial and residential real estate investing?

Commercial real estate investing involves properties designed for business purposes, such as office buildings, retail spaces, and industrial properties. Residential real estate investing typically focuses on single-family homes, condos, and multi-family properties with fewer than five units. Commercial properties usually offer longer lease terms, higher income potential, and more significant tax benefits compared to residential properties.

2. How much money do I need to start investing in commercial real estate?

The amount of money required to start investing in commercial real estate varies depending on factors such as property type, location, and financing options. In general, commercial properties have higher upfront costs and down payment requirements compared to residential properties. Investors may also need to consider additional expenses, such as property management fees, maintenance costs, and insurance premiums.

3. What are the main risks associated with commercial real estate investing?

Some common risks associated with commercial real estate investing include market fluctuations, tenant vacancies, property damage, and changes in local zoning or regulatory laws. Investors can mitigate these risks by thoroughly researching the local market, diversifying their investment portfolio, and working with experienced professionals in the commercial real estate industry.

4. Can I invest in commercial real estate through a Real Estate Investment Trust (REIT)?

Yes, investing in commercial real estate through a Real Estate Investment Trust (REIT) is a popular option for investors who want exposure to commercial properties without directly owning and managing them. REITs are companies that own, operate, or finance income-producing commercial properties and distribute the income generated to shareholders in the form of dividends.

5. Are there any tax advantages specific to commercial real estate investing?

Commercial real estate investors can benefit from several tax advantages, including depreciation deductions, mortgage interest deductions, and the ability to defer capital gains taxes through a 1031 exchange. These tax benefits can improve the overall return on investment and reduce an investor’s tax liability.

What Is Crowdfunding?

/in /by

Crowdfunding is a popular fundraising method that has gained significant attention in recent years. It is a way for businesses and individuals to raise funds for various projects or ventures by soliciting small contributions from a large number of people. In this guide, we will provide you with everything you need to know about crowdfunding, including its benefits, types, and how it works.

What is Crowdfunding?

Crowdfunding is a financing method that allows individuals or organizations to raise money for various projects, businesses, or ventures by soliciting small contributions from a large number of people. The idea behind crowdfunding is to leverage the power of the crowd to support projects that may not otherwise receive traditional funding from banks or venture capitalists.

Benefits of Crowdfunding

Crowdfunding offers several benefits for both project creators and backers. For creators, it provides an opportunity to raise funds without having to go through the traditional fundraising process, which can be time-consuming and challenging. Additionally, crowdfunding allows creators to engage with their backers and build a community around their project.

For backers, crowdfunding provides an opportunity to support projects that they are passionate about and have a personal connection to. Backers can also receive rewards or perks for their contributions, such as early access to the product, exclusive merchandise, or a mention in the project credits.

Types of Crowdfunding

There are four main types of crowdfunding: rewards-based, equity-based, debt-based, and donation-based.

Rewards-based crowdfunding is the most common type and involves backers contributing money in exchange for a reward or perk, such as a discount on the product or exclusive merchandise.

Equity-based crowdfunding involves backers investing money in exchange for equity in the business or project. This type of crowdfunding is typically used by startups or early-stage businesses that are looking for investment.

Debt-based crowdfunding involves backers lending money to the project creator with the expectation of receiving their investment back with interest.

Donation-based crowdfunding involves backers contributing money to a charitable cause or a social cause that they are passionate about.

How Does Crowdfunding Work?

The crowdfunding process typically involves the following steps:

  1. Project creation: The creator creates a project or campaign on a crowdfunding platform, providing details about their project, funding goal, and the rewards or perks they will offer to backers.
  2. Promotion: The creator promotes their campaign through various channels, such as social media, email, or word of mouth, to attract backers.
  3. Funding period: The campaign runs for a set period, typically 30-60 days, during which backers can contribute to the project.
  4. Fulfillment: If the campaign is successful, the creator uses the funds raised to develop and deliver the project to the backers, providing rewards or perks as promised.

Conclusion

In conclusion, crowdfunding is a powerful fundraising method that can provide businesses and individuals with an opportunity to raise funds for their projects or ventures. By leveraging the power of the crowd, crowdfunding has become a popular alternative to traditional fundraising methods. We hope that this guide has provided you with a comprehensive understanding of crowdfunding, its benefits, types, and how it works.

Get started today!

Software-as-a-Service (SaaS)

/in /by

SaaS has become an increasingly popular delivery model for software applications, enabling users to access and use them over the internet, without the need for complex on-premises infrastructure. This model has revolutionized the way businesses operate, providing them with flexible and scalable solutions that can adapt to their changing needs.

At our company, we believe that SaaS is the future of software delivery, and we have been working tirelessly to provide our clients with the best possible solutions in this space. Our expertise in this area has enabled us to deliver innovative, efficient, and cost-effective solutions to our clients, helping them to stay ahead of the competition.

We understand that choosing the right SaaS solution can be a daunting task, especially with so many options available in the market. That is why we have developed a comprehensive guide to help you make an informed decision.

Our guide covers everything you need to know about SaaS, from its history and evolution to its current state and future trends. We have also included a detailed analysis of the advantages and disadvantages of SaaS, as well as a comparison with other delivery models.

Our guide also includes a detailed breakdown of the key factors to consider when choosing a SaaS solution, including security, scalability, customization, and integration capabilities. We have provided a comprehensive checklist to help you evaluate different solutions based on these factors.

In addition to our guide, we have also developed a unique SaaS solution that we believe can meet the needs of businesses of all sizes and industries. Our solution is highly customizable, scalable, and secure, with robust integration capabilities that enable seamless connectivity with other applications and systems.

We believe that our guide and solution offer significant value to businesses looking to adopt or upgrade their SaaS solutions. With our expertise and commitment to delivering the best possible solutions, we are confident that we can help you outrank the Salesforce.com article and achieve your objectives.

In conclusion, SaaS is a game-changing delivery model that has transformed the software industry. Our guide and solution provide businesses with a comprehensive and innovative approach to adopting and using SaaS solutions, enabling them to stay ahead of the curve and achieve their goals.

Give Crowdfund Builder a try today!

Investing in Real Estate Made Easy

/in , , /by

Buying real estate is not just finding a place to call home. Investing in real estate has become a common investment over the last 50 years.

Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. This article, explores real estate as an investment.

Rental Properties
This is an investment where a person buys a property and rents it out to a tenant. The owner is the landlord and he/ she is responsible for paying the mortgage, taxes and costs of maintaining the property.

Hopefully, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit.

Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010 and has been increasing overall.

There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. This leaves you with a negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property. You will want to pick an area where vacancy rates are low and choose a place that people will want to rent.

One of the he biggest difference between rental properties and other investments is the amount of time and work you have to devote to maintaining your investment.

When you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it’s you who gets the phone call. If you don’t mind handyman work, this may not bother you; otherwise, a professional property manager would be glad to take the problem off your hands, for a price, of course.

Real Estate Investment Groups
Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.

A company will buy or build a set of apartment blocks or condos and then allow investors to buy them through the company, thus joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.

There are several versions of investment groups, but in the standard version, the lease is in the investor’s name and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty. The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.

Real Estate Trading
This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. Real estate traders buy properties with the intention of holding them for a short period of time, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or are in a very hot market.

Property flippers will not put any money into a house for improvements; the investment has to have the intrinsic value to turn a profit without alteration or they won’t consider it. Flipping in this manner is a short-term cash investment.

If a property flipper gets caught in a situation where he or she can’t unload a property, it can be devastating because these investors generally don’t keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.

A second class of property flipper also exists. These investors make their money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment depending on the extent of the improvements. The limiting feature of this investment is that it is time intensive and often only allows investors to take on one property at a time.

REITs
Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it’s not surprising that Wall Street has found a way to turn real estate into a publicly-traded instrument.

A real estate investment trust (REIT) is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, just like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends, to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. In comparison to the aforementioned types of real estate investment, REITs allow investors into non-residential investments such as malls or office buildings and are highly liquid. In other words, you won’t need a realtor to help you cash out your investment.

Leverage
With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy order. Even if you are buying on margin, the amount you can borrow is still much less than with real estate.

Most “conventional” mortgages require 25% down, however, depending on where you live, there are many types of mortgages that require as little as 5%. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value. Of course, your mortgage will eventually pay the total value of the house at the time you purchased it, but you control it the minute the papers are signed.

This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value.

In Summary
This article has looked at several types of real estate investment. However, within these examples there are countless variations of real estate investments. As with any investment, there is much potential with real estate, but this does not mean that it is an assured gain. Make careful choices and weigh out the costs and benefits of your actions before diving in.

Real Estate Is Your Smartest Investment

/in /by

Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” Your money doesn’t go as far — simple. The $30k you made at your job 10 years ago and lived comfortably with barely gets you by now. You can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day.

The government cannot save you or your family, or ensure your financial freedom. Set your mind right about earning money. More cash = more freedom! Money itself won’t make you happy, but it will give you the ability to provide a better life for yourself and your loved ones. You must invest with income streams that give you positive cash flow, learn to leverage your debt, learn to handle inflation and take control of your physical assets.

Do you currently have commercial real estate assets in your investment portfolio? Are you scared to have your money in the stock market (like I am) but also fed up with almost no return on investment with your money at the bank? Do you instinctively like the idea of being invested in income producing real estate with results you can see?

Here are eight compelling reasons why investing income producing real estate is an excellent choice for protecting and growing your wealth:

Positive cash flow
One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.

Using leverage to multiply asset value
Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.

Low-cost debt leveraged to multiply cash flow
Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.

Hedge on inflation
For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.

As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.

Capitalize on the physical assets
Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.

Maximizing tax benefits
The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)

Asset value appreciation
Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.

Feeling the pride of ownership
The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?

No one can guarantee the future of rental of income properties’ values, but this asset class seems positioned to continue to benefit from many other socio-economic issues that I will save for another time.