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Investment time for commercial real estate

On Behalf of | Oct 1, 2021 | Business And Commercial Law

When you find historically low-interest rates, commercial real estate, or CRE, is often a popular investment to purchase. Commercial properties in Illinois can often be leveraged on down payments under $100,000. Investing in commercial real estate, however, isn’t like stocks, bonds, or investment funds. Property must be maintained and actively managed, and it will only make money if occupied by paying tenants. Here are some reasons why investors choose CRE over residential properties.

Opportunities in down markets

Investors in real estate look for down markets to make their purchases while using up markets to fill their properties up with tenants. This is a flexibility that few other assets can boast about having. Down markets are when businesses have depleted their capital and need to sell their assets. Commercial property, though often expensive, is found at great deals when business owners need to make a quick sale. Both down and up markets are good for CRE.

Protection against short-term exposure

Your hedge against short-term risk exists because commercial tenants are long-term by nature. Business and income activities are what designate a space as commercial. These operations call for people to have business plans to account for years of growth and not just a few months. You are protected from short-term risks overall due to the ability for a commercial property to:

• Pay for its own taxes, repairs, or renovations
• Maintain longer-standing tenants and contracts
• Charge higher premiums for professional, public space
• Remain in the public market for a later sale
• Increase in market value each year

Tax deductions through property depreciation

For commercial zones, the IRS, unlike residential, allows tax avoidance via value depreciation. When accounted for, value depreciation on your property results in a tax deduction. Reducing the amount of property or assets that are taxable is only done via deductions. Deductions, however, don’t eliminate your tax responsibility. The amount you owe is reduced because only a portion, not all, of your property gets accounted for.

The prospects of commercial properties are attractive to many investors. However, they still have their risks, so it’s important to do your due diligence before making a purchase.