Owning Real Estate

The Importance of Owning Real Estate

It is no secret that the greatest consistent wealth-builder in history has always been investments in real estate. Real estate is a necessity everywhere in the world, they aren’t creating anymore land, but the population is increasing daily. Real estate is more than just a fallback investment during a bear market. And unlike the paper investments of the stock and bond markets, carefully selected income properties have real long-term value secured by physical assets.

Additionally, they are not the subject to the wide fluctuations, common to stock markets and, when properly managed, they can continue providing a steady return on investment excess of 7% per annum even when the markets are flat. With mortgage rates at historic lows and vacancy rates in prime areas about 2%, investing in income-producing properties is such a lucrative opportunity.

Diversify your Investment Portfolio with Commercial Property:

• Investment in a commercial property can provide secure long-term income streams and steady capital growth: it can help you diversify your investment portfolio from residential property, shares, stocks and bonds.
• Income Producing Commercial Properties Include:

1. Office buildings
2. Strip centers
3. New construction
4. Industrial/warehouse
5. Multi-unit residential properties (5 units or more)

There are substantial advantages to being the landlord of a commercial property:

• Unlike the stock market, real estate offers the power of leverage. Commercial property usually requires a 20-35% down payment, which means the banks provide the balance.
• Tenant's rent in most cases cover all expenses and mortgage payments, reducing the debt, building equity and increasing your net worth while providing a healthy cash on cash return.
• Owning commercial properties means leveraging one’s earning capacity; before you know, it will be paid off with a higher consistent return, major appreciation and a debt free asset you can leverage against. Remember, the key to financial freedom is: turning earned income into passive income.
• Investment into real estate means your dollars are working hard, so you don’t have to
• Commercial property is valued differently than residential real estate. Rather than being determined by market comparable's, commercial values are based on the income that a property produces. This means that you have more control over the property’s value by increasing its income or adjusting operating costs.
• Unlike many residential properties, commercial real estate can sometimes be divided into multiple units, allowing you to collect several rental incomes. This mitigates risk because rental income is spread over several tenants rather than just one.

• Commercial properties typically let for long-terms – 5, 10 and even 15 years is not uncommon, although generally the lease lengths have come down in recent years.
• Tenants generally accept the custom and practice of insuring and repairing leases – the tenant pays operations and improvement cost which gives the landlord a clear return.
• Whereas residential property has recently given high capital growth (particularly over the last 10 years) commercial properties provide low but steady growth, but a high income return.
• This latter point particularly suits the individual who needs income now – compare the residential cash on cash return: 1.5% at best compared to a commercial return of between 5% to 15% annually, from a good solid commercial property investment based on 35% down payment.
• There are tax advantages which involve incorporating a commercial property, tax write offs, depreciating the asset…etc.

Commercial property is not without its risks:

1. Commercial properties generally need a bigger initial investment than residential properties, although you can invest collectively into a syndicate.
2. The property will need to be managed
3. Each property is unique and cannot be moved, so its location is vital and so is its local economy. Tenant demand is the key.
4. Unlike shares, where you can pick up a telephone and “sell”, commercial properties can take months to dispose of.