Why Buy Commercial Property

When it comes to investing your hard earned cash there are many choices, rangeing from buying stocks and shares in listed companies; starting your own businss; investing in a partnership or joint venture; buying precious metals, rare coins, art work or other collectables; buying Cryto-Currencies; and the list continues. The reality is that there are literally hundreds of asset classes and ventures one can invest in, so why choose to invest in Commercial Property?

Firstly, Real Estate is an asset class that long-term has always offered unparalleled security. This is likely to continue for as long as the land upon which it sits is usable by, or valuable to humans - whether for residential, business or agricultural purposes, or because of the miniral or resource wealth contained thereon or thereunder. Additionally as the human population contunes to grow, so the value of land, a scares resource, and all it holds, will continue to increase in real value. This is the principle known as 'Scarcity Value'. Scacity Value tends to increase exponentially with growth in both human population, and human affluence.

Secondly, Real Estate can offer apprecation, developmental potential and a stable revenue stream. All real estate essentially start with the land. As the old saying goes, 'Under Everything Is The Land', and it is the land that tends to appreciate over time due both to Scarcity Value and Increasing Demand. And both current and future Demand is dependnat very heavily on LOCATION. Again another well known Real Estate phrases is 'Location. Location, Location!'. As population densities tend to increase within a given area, so generally do land values. Location is hence key in any real estate investment, but speciifcally in Commercial Property Investment.

Developmental Potential is based on two factors: (1) Location and (2) Highest And Best Use. We have already discussed Location. Changing the use or zoning of a property can also significantly change it's value. A good example of this is a residential home on a busy road, that is re-zoned from Single Family Residential to say a Commercial Office. Sometimes the exisitng buildings can also be converted from a house into a small office complex. Many savy Real Estate Investors will buy property that lies in the path of futre development and expansion, and then simply wait for that development to come to them. A good example of this would be a Trailer Park on the edge of an expanding city. While the investors waits for the city expansion to come to them, they are collecting rental income from their trailer tenants. Then once development has come their way, they are often able to sell the land at a significant profit to another property developer who perhaps wants to build a stip mall, office park, residential community, etc.

Which brings us to the 3rd facet of Real Estate Investment, namely Revenue Generation. Unlike many 'speculative' types of investments, suc as precious metals or crypo-currencies, Developed Real Estate can pruduce fairly healthy revenue returns - usually in the form of rental receipts. These can yield annual Returns-On-Invesment (ROI) of between 4% and 10% of total capital invested. This is over and above the underlying capital appreciation of the asset over time, which could quite easily average another 3% to 5% per year (maybe even more in times of high inflation). Rental ROI and Appreciation Rates depend on many factors including market forces (i.e. supply and demand), type of real estate investment, risk factors, etc. Further discussion of these factors are discussed under the specific property options available.

Thirdly Real Estate, unlike many other asset classes, can be easily leveraged and at realtively low costs. What this means is that real estate assets can be used as secuirty for a loan or mortgage. either to purchase the asset, or to 'cash-out' some of the equity in the investment after closing. Leverage allows investors to magnify their Return-On-Cash invested. For example, if you purchased a $1m USD property yeilding say a 7% annual return, but only put 30% down and finaced the balance of the investment with say a 3o year fixed rate mortgage at say 4% interest per year, your Cash-On-Cash Return (i.e. the return on the cash you actually invested) whould be a whopping 14% per year (i.e. $1m x 7% = $70.000 Less Interest Paid Per Year of $28,000 (i.e. $700,000 x 4%) = $42,000 Net Revenue Divided by $300,000 Cash Invested = 14%). Of course the greater the leverage, the greater the risk - so leverage can be a 'double sided sword', but used wisely and prudently, it can greatly magnify cash-on-cash returns.

Fourthly, Real Estate offers attractive tax advantages. Under current US Tax Law, all improvements (i.e. buildings, etc.) on Commercial Income Producing Real Estate, can be depreciated over time, and all maintenance costs, property insurance, property taxes, etc. can be written-off in the year in which they are incurred. These provisions have the effect of reducing taxable income, and thus reducing income tax payable. Additionally when selling and buying similar types of income producing properties simultaneously, capital gains can be deffered almost indefinitely under the provisions of Section 1031 of the Federal Income Tax Code. While the current Administation is trying to curb the benefits afforded Tax Payers under Section 1031, these provisions are likely to survive in one form or another. Team Niche Realty however, is not in the business (nor are we qualified) to offer tax advise. Investors should always seek the council of qualified Tax Advisers regarding all tax matters before making any decisions in regard thereto.

The Fifth main benefit of Real Estate Investment is to do with Tradability. Tradability refers to the ease with which an asset can be sold or traded for another asset or for cash, as the case may be. While Residential Real Estate can sometimes be sold in weeks or even days (depending on the market and the asking price), selling Commercial Real Estate is a little more complicated, time consuming and will generally takes months and sometimes even years to sell. Here again market forces, desirability, price and market niche all play an important part. Hence while selling Commercial Real Estate may not be as quick and easy as selling Residential Real Estate, here in the USA there is a wide network of highly skilled and specialized Commercial Realtors® whose focus is on marketing and selling such properies on a national basis, and to an international clientel. Listing such properties with suitably qualified and experienced Commercial Real Estate Brokers is hence critical in ensure a quick and successful sale.

Residential Rental Real Estate vs Commercial Real Estate. Real Estate can be divided into two broad categories - Namely Residential Real Estate on the one hand, and Commercial Real Estate on the other hand. Most Residential Real Estate in the USA is purchased as a primary residence for it's owners, and some as 2nd or even 3rd homes for such owners. About 36% or roughly 44 million US households live in rented homes and apartments, of which only about 12% are single family homes. Hence the Residential Single Family Rental Market is still relatively small (i.e. in 2021 about 5.29 million households). That sector has also become the target of large corporate investors and hedge and pension fund investors over the last decade, making it an extremely competitive market for investors with diminishing returns. Additionally the Tenant Eviction Moratorium of 2020 and 2021, has left millions of Landlords unable to collect rent and generate revenue, unable to evict non-performing tenants, unable to sell non-performing properties, and sometimes unable to service the properties and pay the mortgages thereon. This whole fiasco has severly undermined and violated the constitutional rights of Residential Proerty Landlords and Owners, and set an extremely dangerous precident for Residential Real Estate Investing moving forwards. For these reasons, Team Commercial USA is advising Investors to stear clear of Residential Rental Properties right now, with the exception of Apatrment Buildings, Student Housing and Senior Housing.

Commercial Real Estate, unlike Residential Real Estate, has far more sectors and sub-sectors under it's banner. Some of these, such as General Retail and Office Space, are facing a number of challanges as Consumer Shopping and Corporate Work Patterns change. With the explosive growth of the internet and online retailing, Neighborhood Shopping Malls are not the 'draw-cards' they once were. Online and remote working has also disrupted the once ubiquitous corporate office world, and employers and their employees are increasingly moving towards a 'work-from-home' model that greatly deflates the demand for office space, especially in congested downtown locations. On the flip side, demand for warehousing is up, as businesses migrate to online retail models seeking localized distribution and fillfullment centers.

Other promising sectors within the Commercial Real Estate realm are Self-Storage Units and RV Parks. For Investors seeking longer term land appreciation, while simultaniously generating revenue and cash-flow, Trailer Parks can be a great option. For those looking at more niche investment opportunities, Marinas, Golf Course, Parking Garages and Resorts, Motels and Hotels offer some unique, if somewhat specialized options. For investors who want a steady cash-flow coupled to long-term property appreciation with minimal management and maintenance involved, Triple and Double Net Lease Properties may be the winning ticket. The bottomline is the there are hundreds of great opportunities within the Commercial Real Estate space. The challenge is find the right opportunity for YOU, that meets YOUR investment level, management involvement, return criteria, risk profile and long-term appreciation goals. Fortunately at Team Commercial USA, we have a myriad of Commercial Investment Opportuities to suit almost every need and wish.