Should you invest in Income Producing Real Estate?

Contributor to #CharkInvest
Jan 16, 2017
3 min read

While there are many ways to invest your money, Income Producing Real Estate is it one of the best ways to safeguard and grow your wealth? Here are eight points to consider before investing:

1. Positive Income Stream

It's obvious why we can give plenty reason to invest money in commercial real estate; it can begin generating a regular active income stream typically much higher than that provided by stock dividends. As long as the property is regularly leased, the asset will remain secure.

2. Multiply the Value of Your Asset

One of the great things about commercial real estate is that lenders will often [at times] allow you to place debt on the asset, usually several times the value of the original equity. With the cash you have in hand, you are free to buy additional assets, thus notably multiplying asset value, increasing equity, and paying down the loans.

3. Positive Leverage to Multiply Cash Flow

To increase positive cash flow from operations, many investors leverages low-cost debt. By borrowing at costs lower than what the property pays out, investors can create and utilize positive leverage. Take, for example, a commercial property generating a 6 percent cash-on-cash return. With an additional debt on the property of 4 percent, in addition to the first 6 percent on the equity portion, the investors would receive 2 percent on the money they borrow.

4. Commercial Real Estate’s Relationship with Inflation

Historically, real estate investments have the highest correlation to inflation than other asset classes, to include 10-year Treasury notes, corporate bonds, and the S&P 500. In fact, inflation leads to rising real estate prices, particularly in multi-tenant assets which have a high ratio of replacement and labor costs.

5. Multiple Sources of Value

Income property is one of the few in investments classes with multiple sources of significant value. Unlike the stock market, investors need not worry about red and green days. It is easy to find value in the property’s land, structure, and of course, the income it produces. When determining the value of the asset, future investors will certainly consider each of these.

6. Maximizing benefits on your Taxes.

If you are a Real estate owner, you can benefit from the US Tax Code in many ways and can protect a part of the generated positive cash flow paid to investors. Consult your tax advisors for a complete explanation of the 1031 provision which allows an investor to reinvest the proceeds of a gain if that money is used to reinvest in a similar property as part of a qualifying exchange of like-kind.

7. Appreciation of Asset Value

Inflation is a part of our economy that has historically drastically reduced the purchasing power of a dollar but provided excellent income property appreciation. Through efficient management and rent increases commercial property, the net operating income of the property increases, resulting in the production of real estate investments that meet and exceed the appreciation of other investment types.

8. Pride in Ownership

Even though more people are making more money than ever before, homeownership continues to be out of reach for most people. The segment of people who can step into the commercial real estate market is even smaller. Investors who can procure the right property at the right time in the right location and the right tenants, however, get the opportunity to experience a mindset that can only be obtained through ownership. Ownership offers investors a level of both pride and security that many people will only dream of.

Sure, there may be no way to ensure the future value of a commercial income property, this asset class will likely continue benefiting from the structure of our economy, as well as many other socio-economic issues.