Have you ever thought about investing in commercial properties?
Before the drop in the market, everyone — including Realtors® — were buying up homes and hoping to turn them quickly for a profit. Unfortunately, when the market bottomed out, so did investors. Simply put, people who were way over-leveraged for their current financial situation lost everything.
While residential properties seem to be making a slow but steady climb back nationwide, the commercial real estate market has not seen such dramatic price shifts. For those with the ability to invest, now may be the time to begin investing in retail office spaces, industrial parks and luxury commercial buildings. As you consider whether or not including commercial properties in your retirement portfolio is suitable for your investment objectives, just keep in mind that a Self-Directed IRA can be utilized as a funding source for commercial property opportunities. Investments can be made via direct transactions on the deed of the commercial property itself or you can pool monies with other investors through the use of entities, such as, limited liability companies or limited partnerships.
Here are five reasons why it may be time to start investing in commercial real estate properties.
1. Commercial real estate isn’t subjected to the same rules and procedures residential real estate is tied to. Residential homes lose or gain value based on the comparable homes in their area. When looking to value a commercial property, it all depends on how much revenue the building is able to generate. After that figure is agreed upon, the revenue is then compared to the comparable commercial properties in the area. Any new revenue that can be generated by the commercial property can instantly add a significant jump in value, allowing for commercial investments to really pay off when it matters.
2. Commercial properties allow for economies of scale. Residential properties, including single family homes and even duplexes, triplexes and fourplexes, mean that you’re managing properties and tenants. With commercial real estate, you can leverage the economies of scale and serve more tenants per square foot.
3. Leases that benefit investors. Multi-year leases are normal in commercial properties, whereas they tend to be abnormal in residential properties. This means you can reduce the hassles and costs that come from high turnover in your tenant base.
4. Versatile financing programs. Commercial property investors don’t have to jump through the same hoops to secure financing as their residential counterparts. That’s because your ability to secure a loan doesn’t depend on your personal financial situation. Commercial lenders focus more on the profit your property is expected to turn and whether or not it’s a sound investment all around. Using a Self-Directed IRA to invest in commercial properties does not limit your ability to use the power of leverage in your commercial real estate investing. It is important to consult with a tax advisor about the potential tax consequences of leveraging your IRA, however.
5. Multiple tenants decrease vacancy risk. The majority of commercial real estate investments include properties which have multiple tenants. This fact allows the owner to hedge against the risk of a high vacancy rate. In residential real estate investing, if your one tenant skips town or needs to be evicted, you are out 100% of the income stream on the property. On the contrary, with multi-tenant commercial holdings, if one tenant defaults on their lease agreement or needs to be evicted, the owner still has multiple tenants providing a stable income stream to ensure continued returns.
For more information on how you can discover your IRA investing alternatives, contact our team at (866) 459-4590 or ClientService@VantageIRAs.com.