For every investor the prime objective is to generate a positive steam of income or return on investment. Investing in commercial real estate affords you that opportunity. Assets that are secure by leases will normally generate income stream quarterly or annually depending on the structuring. This stream of income is called Return On Investment (ROI) with indicates the percentage return that the investor is receiving in relation to the equity which they put in. For example, if the investor had put in $ 200,000 equity in the property to purchase it, and the annual positive stream of income is $20,000, then the ROI will be 10%.
Commercial real estate is one of the few investment classes that is a tangible (hard) asset that has great intrinsic value. The land on which the structure sits has value as well as the structure too. By choosing the location and asset quality wisely, there can be great benefit from knowing that the said asset has the potential to earn income regardless of what happens to the existing leases in place. So in comparison with investment like stock as regards to volatility, commercial real estate do not fluctuate as much.
Appreciation is define as an increase in property value due to various factors like positive improvements to the area which the property is located, general economic improvement of the area and elimination of negative factors in that area which tends to adversely affect the value of the property. A commercial asset can undergo appreciation by adding value to it in structure, for example a vacant retail building can be converted to economical office space which may be in high demand in the market or an older and abandoned industrial complex located in urban areas can be converted to an apartment use, and this may be a huge cash commitment but it’s well worth it.
This is a cost recovery tool in commercial real estate, is the periodic allocation of the cost of the portion of an asset that wears out. In other words, it could be a non-cash, tax-deductible expense that reduces taxable income but does not reduce cash flow .
The US tax code benefits real estate owners in various ways. It is recommended that one consults tax advisor to understand all of the benefits.
HEDGE AGAINST INFLATION
Commercial real estate investment as a superior hedge when it comes to inflation compare to other asset classes such as stocks, bonds or treasuries.