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Income Properties

Income property is bought or developed to earn income through renting, leasing or price appreciation. Income property can be residential or commercial. Residential income property is commonly referred to as "non-owner occupied". There are many varieties and kinds of commercial property which apartments or Multi Family Housing, Office property, Industrial property, or standard residential rental investment property.

Investors know “Four Benefits of Owning Commercial Property”, and so should you:

1. Cost Recovery – Also known as Depreciation is the periodic allocation of the cost of the portion of an asset that wears out. Cost Recovery can also be defined as:

  • An allocation of the cost of an asset, taken as an expense against any income that the asset produces.
  • The return of investment in business and income-producing property, prorated over its class life
  • An annual deduction that reduces basis when calculating gain or loss at the time of disposition
  • Non-cash, tax-deductible expense that reduces taxable income but does not reduce cash flow

Annual cost recovery is calculated by multiplying the amount of the basis allocated to the improvements of the property be the appropriate cost recovery percentage. The allowable cost recovery period for commercial property is 39 years. As an example, a property with an accounting basis of $1,000,000.00 would be able to take an annual $25,641.00 expense on the tax return.

2. Appreciation – Appreciation is defined as an increase in property value due to positive improvements to the area which the property is located, an upgrade in general economic conditions, or the elimination of negative factors which effect the property and the area. Although, most residential property owners can only have a limited impact on increasing property appreciation, the commercial property owner has many more opportunities available to them. A commercial property owner or investor can;

  • Take an antiquated industrial facility or complex and convert it to a newer modern facility which could accommodate the needs of today’s industry.
  • Older and abandoned industrial complexes located in urban areas are commonly converted to multiple residential apartment or condominium units.
  • Vacant retail buildings can be converted to economical office space which may be in high demand in the market.

Although significant capital can sometimes be required to complete a successful conversion project, the upside for many property owners and investors is well worth the investment.

3. Principal Reduction – Provided that you have a standard amortizing mortgage, and not an interest only note, every time you make your monthly mortgage payment, you are paying off a portion of the debt or principal. Your monthly payments are made up of both principal and interest.  “Principal Reduction” is a staple of owning any type of real estate whether it is commercial or residential.

4. Cash Flow – It is every commercial property investor’s objective to generate a “positive” cash flow from his or her property. A “positive” cash flow is the income which is received from the property after operating expenses and mortgages have been paid. Of course, sometime this can be also “negative”, whereby the investor must take money out of their pocket to cover the operating expenses and mortgage. 


Given these benefits I think you can see there certainly is potential to build wealth through commercial real estate investment. Please reach out and we can discuss your objectives further.

Here is a link to the most recent Quarterly Maket Conditions report prepared by the CCIM Institute.

CLICK HERE FOR THE QUARTERLY MARKET TRENDS REPORT

 


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