Rising inflation and the bear market are a real concern. Yet, expanding your investments in commercial real estate can help protect your bottom line from these threats.
Commercial real estate offers stability, purpose and value
Though the value of commercial real estate regularly fluctuates, it tends to be a more stable investment than the stock market. Moreover, by investing in tangible property, owners can access their equity with a line of credit while continuing to retain ownership of the property. Real estate investment is also part of a strong retirement savings plan. Buyers who invest wisely and hold their real property long term can achieve returns well above the 10 percent average increase that Nasdaq and Dow Jones investments offer.
Given the steep rise in rent prices, commercial real estate continues to be a hot commodity. In Fayetteville, for example, the demand for multi-family residential units is high and there is not enough supply to keep up. Investing in multi-family developments to help meet the current demand for 20,000 additional residential units is a strategy that is likely to pay off, especially considering that demand is expected to remain high.
When property costs and property management expenses rise, many of those costs are passed along to tenants in the form of higher rental rates. More specifically, most commercial leases have a ‘base’ rental rate, a predetermined regular rental increase, and a variable Common Area Maintenance (CAM) rate, which is based on actual market conditions of services rendered like cleaning and taxes. These leasing terms mean that investors are well-positioned to continue receiving constant returns even as housing and maintenance costs go up.
The role of the commercial real estate expert
To keep your initial investment low, consult with a commercial real estate expert who is knowledgeable about programs that can fund affordable housing developments, new business ventures, or Small Business Administration programs for the “Owner-User” of a commercial space.
Aside from advising you on real estate investments and tax deferrals, a real estate expert who knows the local market can provide critical information that helps a buyer avoid pitfalls and unlock the full potential of a property.
Investing in commercial real estate also makes sense from a tax perspective. With the right strategy, real estate investment carries a lower tax burden than stock market investments. While investors must pay capital gains taxes on stock market earnings, they don’t pay taxes on the value of real estate holdings until they are sold. When an investor decides to liquidate a property, an experienced commercial real estate consultant can give them tips to minimize their tax burden, such as by channeling those assets into a new investment vehicle. Knowing how to navigate a 1031 tax exchange can enable you to defer a considerable amount of capital gains taxes. Your commercial real estate consultant can help you retain as much as 32.5 percent of the purchasing power of your assets by deferring capital gains taxes in this manner.
After nearly 20 years in the business, Pappas Commercial Properties has extensive experience conducting market and environmental analyses, ensuring that properties undergo thorough inspections, and navigating the permitting process.
Our services are tailored to each client and we value building relationships, and succeeding together. We want to match clients with the right site to set them up for long-term success. If you’ve been considering making the leap into commercial real estate investments, it’s time to strike now while the iron is hot. We can help.
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