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One of the main attractions of investing in Commercial Property is its security.
Unlike residential property … Commercial Property is generally still there performing for you, if the economy does slow down.
However, when the economy is strong, Commercial Property grows in value and provides you with a steady income.
Anyway, for those of you starting out … here’s a list of the benefits you’ll enjoy from successful Commercial property investing.

Benefit : Strong Returns

Commercial Property provides strong and reliable returns in the form of both income and capital growth.
Your aim ought not be looking to make a quick gain. But over time, you should achieve a solid return consistently above inflation.

Benefit : Stability of Income

An important point to make about Commercial property is that … not only are the returns higher, they are usually more secure.
Unlike the short-term leases for residential property, Commercial Property leases will generally range from 3 to 10 years.

Benefit : Lower Risk

Taken overall, Commercial property investment tends to carry less risk than residential property or the stock market.

Benefit : Exposure to Different Sectors of the Economy

Retail and industrial properties probably have the highest direct relationship to the economy, with retail property dependent on consumer spending trends.
Whereas, office buildings tend to perform based upon long-term supply and demand.

Benefit : Tax Benefits

You will also find Commercial Property provides you with generous tax benefits.
Depreciation allowances on plant equipment are quite significant (on things like … air conditioning, carpets, lighting and so on).
But that’s just part of the benefit — as most Commercial properties also attract handy building allowances is well.

Benefit : Hedging against Inflation

Historically, Commercial property has been viewed as a good hedge against inflation.
Commercial Property certainly has an excellent record for outpacing inflation over a long period of time.

Benefit : Investment Control

As an owner of direct property, you have a significant degree of control over your investment.
Areas such as: renovations, upgrading, a change of use for the property, the terms of the lease, the type of tenant, redevelopment and disposal.

Benefit : Ability to Add Value

Ways for you to add value to a Commercial Property would include: renovating, upgrading, subdividing or enlarging, improving the appearance and restructuring the lease.

Benefit : Leverage

Through astute borrowing against your Commercial property investments over time, you are in a position to quickly control a sizeable portfolio of properties.

Most business owners must eventually confront the issue of whether to purchase or lease their office space. There are many factors to consider in making this important decision. For new dental practitioners who are uncertain of future space needs, and who want to ensure maximum cash flow as they grow their business, leasing may be a wise option. But for new or seasoned practice owners with a strong financial profile, a clear picture of future growth, and the ability to take advantage of the tax benefits of ownership, a commercial real estate purchase can provide a solid foundation for growing the business.

following are a number of potential advantages to owning commercial property:

Historically low prices

Commercial properties for dental practices are far less expensive today than they were before the recession. In some areas, it may ultimately be less costly to purchase and outfit commercial real estate than to build-out and rent a leased space. While property values will not likely rise at the aggressive rates seen from 1998 through 2005, it is a safe bet that at today’s lower prices, both residential and commercial real estate values are likely to appreciate over time. The property owner will receive the full benefit of that appreciation.

Favorable financing rates

The most significant cost of purchasing real estate is the mortgage interest rate. Today, rates for commercial real estate purchases continue to be at an all-time low, ultimately saving significant funds as you pay down your commercial mortgage. However, obtaining financing can still be a challenge, so it’s critical to maintain a spotless financial profile and be prepared with a comprehensive business plan that makes the case for the viability of your practice. Also, consider working with a lender that specializes in dental practice financing and understands your particular needsEquity appreciation
As you build equity in your business real estate, it becomes a more valuable asset that you can leverage to further grow your business without putting your practice itself at risk. This gives you greater flexibility in managing your business growth. It also gives you additional options when the time comes to retire. As the commercial property owner, you can sell the practice and underlying property outright at the time of retirement, or sell the practice only and lease the commercial property, which produces an ongoing income stream.

Cash flow opportunities

If you purchase commercial property that has space for tenants, you have opportunities for additional cash flow through rental income. You can use tenant income to help pay down the property purchase, thus offsetting the cost of your investment. However, it’s important to remember that having tenants involves property management responsibilities that may detract from attending to your core business of treating patients.

Tax advantages

Owning your practice allows you to depreciate your asset while writing off all of the mortgage interest paid during the year. You can also enjoy the benefits of several tax deductions designed for the business or property owner:
– Section 179 — IRS Tax Code Section 179 allows deductions for equipment and furnishings purchases that are put into service the same year that they’re purchased. For the past three years, Congress has granted a generous deduction of $500,000, which can be a significant contribution toward offsetting the cost of the property purchase.
– Cost segregation — This method of depreciation allows you to depreciate the building and components, such as wiring and lighting, over a 39-year period, which offsets the cost of building maintenance for a significant amount of time.
– 1031 exchange — Investment properties used in a trade or business can be sold and the funds applied toward the purchase of a similar or like property within 180 days of sale, without reaping any tax consequences. The purchased property must be of equal or higher value to avoid a tax penalty. This provides leverage for a practitioner to move his or her practice to a larger facility as the practice grows, without being hindered by tax penalties.
Before purchasing commercial real estate, be sure to consult with a CPA or financial advisor to fully understand how a purchase would affect your particular circumstances.
Keith Merklin joined Live Oak Bank in 2010, bringing with him over 14 years of experience as a commercial lending officer. He is a top producer and has spent his career working with small health-care practices. Contact him at keith.merklin@liveoakbank.com.

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Date:

February 19, 2018

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