Have you ever wondered, what is income-producing real estate, exactly? Income-producing real estate is a property that investors purchase to make money through rent and market appreciation. In other words, the income-producing property is intended to generate rental or other revenues for the owner.
Reliable monthly income and passive income opportunities are a couple of benefits offered by real estate investments. If you dream of having enough money to live comfortably without depending on anyone else for income then you may want to consider allowing an income-producing property to help you reach your financial independence goal.
Supply and demand are two important factors for investors to consider when looking at commercial properties to invest in, rather than a partial-use property. Commercial properties vary and can include warehouses, industrial buildings, apartment complexes, nursing homes, treatment centers, office buildings, shopping centers, etc. Most commercial properties have multiple tenants. Having multiple tenants gives the owner portfolio balance and diversification. If you have multiple tenants, you are not 100% reliant on one tenant’s payment. For example, if you have a 10-space apartment complex and one tenant leaves, the impact on your property’s finances is minimal. A single space investment means that you are 100% tied, and if that property fails or does poorly, your investment is in jeopardy, if not lost.
Commercial real estate investment is traditionally made for its earning potential. The annual return on commercial real estate property is generally between 6% and 12% of the purchase price, depending on the type of property. It is not uncommon for commercial properties to increase significantly in value over time. One of the greatest hedges against inflation is commercial real estate. Because the value of commercial real estate is dependent upon rent. As rent increases with inflation, so does the value of the property. Simply put, if the rents double, then the value of the property doubles as well. Inflation also works in the investor’s favor because it drives up the cost to build new properties. When this happens, the value of the existing real estate rises to match those new values.
There is no specified shelf life for a commercial property which makes the investment process attractive and exciting. Basic needs drive most commercial real estate. Shelter (live-in facilities, apartments, and mobile home parks), retail spaces, office space, and storage (personal storage or for industrial use) are always in strong, perpetual demand. Tenants of retail spaces have a vested interest in keeping their shop and shopfront in above decent working condition. If they do not, their business reputation and sales will be affected. The quality of the property and the value of the investment is generally improved when the interests of the commercial real estate tenants and their property owner are aligned.
Often, when you’re buying a commercial property, you need to find financing for it. Even if you did have the cash to buy it, you might be better off looking at a more valuable property that requires financing. Mezzanine financing can be a bridge of debt and equity financing that gives the lender the right to convert the debt to an equity interest in the company in case of default. It often requires 12-20% interest per year and typically has a higher risk and higher returns. This kind of debt is senior to pure equity but subordinate to pure debt. The benefit for borrowers is that the interest is tax-deductible and can be deferred if necessary. It is great for lenders due to the higher interest and long-term debt. Also, the lender can convert the debt-equity if the borrower defaults. Maybe you’re interested in finding other financing options to obtain a commercial real estate property. I mean, a steady cash flow and an opportunity for passive income sound excellent! Maybe you’re thinking, “My local bank will give me the best deal.” Finding the right financing solution for your commercial property can be challenging, and although a local bank is a good place to start, we are not confident that you will get the best deal. A really safe and conservative loan is 65% loan to value but they can go as high as 95%. Yikes! Unfortunately, these high rates are how many real estate moguls go bankrupt. If you are not carefully guided during the financing process, this can happen to you.
The experts at PSC inform and guide your investment decisions, ultimately, we want to help turn your short-term goals into reality. When you work with PSC, you are building a one-on-one relationship that will outvalue the cost of your loan. We are ready to streamline your processes by giving you access to more than 150 lending sources including banks, credit unions, agency lenders, and private lenders, we can help you secure the most aggressive financing options available. We are “the best-kept secret in commercial finance.” It’s time for the secret to getting out!
Our experts are knowledgeable about the current factors affecting your market. They are equipped and happy to guide your investment decisions. If you are ready for a steady cash flow and a passive income through commercial property investment, let’s chat!