How Commercial Real Estate Investments Make you Money
When we invest our money in the stock market, we usually expect to make a return based on a couple of vehicles – stock price appreciation and potentially a dividend based on the number of shares you own (many companies don’t offer a dividend).
When we invest in Commercial Real Estate, here are the 4 vehicles where your investment can make you money.
CASHFLOW from Operations
Positive cash flow from rental/lease income is typically distributed to investors quarterly (sometimes monthly) and in lump sum payouts at disposition and/or refinancing (usually 5 years).
FORCED APPRECIATION from Capital & Operational Improvements
A commercial real estate asset is a business and its value is primarily determined by its Net Operating Income (NOI), not property comps. Through physical and operational improvements that increases its gross profitability (revenues minus operating expenses), you can increase the value of the property by increasing its NOI.
AMORTIZATION to Build Equity
Revenue from regular operations & rental income pays down the debt on the property, which in turn builds equity for investors.
DEPRECIATION and Other Tax Benefits
Investors benefit from tax benefits such as accelerated depreciation and cost segregation, possible 1031 exchanges into new projects and tax-free return of initial equity.
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