Tag Archive for: investment

Should you invest in commercial real estate?

Commercial real estate investments are strong for a number of reasons. First, commercial properties tend to have higher cash flow than residential properties. This is because commercial properties are often leased by multiple tenants, which means that there is a steady stream of income coming in. Second, commercial properties tend to appreciate in value over time. This is because the demand for commercial space is usually growing, which means that there is more competition for properties. Third, commercial real estate investments can provide tax benefits. For example, investors can deduct the depreciation of their properties from their taxes.

Commercial real estate investments can be a great way to generate income, build wealth, and save on taxes. If you are looking for a strong investment, commercial real estate may be a good option for you.

Here are some additional details to support the points made:

  • According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the average annual return on commercial real estate investments over the past 15 years has been 12.7 percent, compared to the S&P 500, which has had an average annual return of 8.8 percent.
  • Commercial real estate investments can provide a steady stream of income, as tenants typically pay rent on a monthly basis.
  • Commercial real estate investments can appreciate in value over time, as the demand for commercial space continues to grow.
  • Commercial real estate investments can provide tax benefits, such as depreciation deductions.

If you are interested in investing in commercial real estate, it is important to do your research and consult with an advisor at Keegan & Coppin to determine if this is the right investment for you.

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It’s not just Cap Rates

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Commercial Investment Valuations are typically presented as cap rate driven: the lower the cap rates, the higher the price. Investors have the challenge of balancing asset security and safety vs. an acceptable Cap Rate return.

Security and safety include a matrix of attributes: Extended Lease Term, Quality Tenant with good credit history (and track record of business acumen), LOCATION (both the immediate demographics and street/area positioning), a favorable NNN lease, long term appreciation aspects, and financing desirability.  However; how low can you go? Cap rates in desirable urban settings wafting in under 4% need a compelling story to convince me.

REMEMBER the OLD Adage: “It’s not what you make; it’s how much you keep.”

Evaluating your cash on cash return is as important, if not more important than a cap rate. If your investment is predicated on a 4% cap rate but the cost of the funds is above that, you are going backwards. It can make sense if you are going into a Value-Added Property, or compelling project that offers an opportunity to increase the income to the current market conditions. No one size fits all but sometimes “all that glitters isn’t gold.”

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