Business owners looking to purchase and occupy a commercial space typically experience many benefits including the potential for appreciation, tax advantages as well as cash flow opportunities.
Commercial real estate (CRE) is property used by businesses or for business-related purposes and is often leased to tenants. CRE includes a range of different types of properties, spanning from shopping centers to warehouses to single office buildings. Business owners can choose from an assortment of options when deciding which commercial real estate property will be the best fit for their business needs.
Read on to learn more about the benefits of purchasing commercial real estate.
1. Opportunity for Cash Flow
Commercial real estate can be an excellent income source. If the building you decide to purchase and occupy has other tenants, you don’t have to wait for the cash flow to start – you can simply become their landlord, charge rent, and even use rent payments towards any loans you may have been granted to purchase the property.
Further, investors should also note that the annual return of commercial properties is highest than residential real estate and therefore, an attractive option for those seeking investments with high earning potential.
2. Say Goodbye to Rent Increases
Landlords can increase rent on your commercial real estate space during the lease renewal process. While landlords are often limited on how much they can increase the rent based on state regulations – such as California having a rent increase cap of 5% per year – these small increases can add up and chip away at your business’ profit.
If you purchase and occupy your own commercial real estate space, you maintain control over the monthly payments based on the rates and terms of your loan. Knowing the amount you will be expected to pay each month can help you to better manage your budget as well as create an accurate financial forecast.
To learn more about business loans and monthly loan payments, use our business loan calculator here.
3. Appreciation Can Build Your Wealth
Commercial real estate can build your wealth over time by appreciating in value. This means that while you’re focused on successfully running your business or enjoying the other benefits, such as a lack of rent increases, you’re making money through just owning the building.
Over time, your building will most likely appreciate due to:
- Inflation
- Interest rates
- Increased job opportunities
- Local supply and demand
- Economic growth in your city
- And more
In addition to your investment appreciating, you may also build your wealth by charging other tenants rent. If you decide to move your business elsewhere or permanently close, you will likely earn a profit from the sale of your CRE. The profit you earn can be invested back into your business, your retirement, or help to fund your next venture.
4. Tax Benefits
Purchasing commercial real estate can provide several tax benefits for small businesses. These benefits may include:
- Interest expense
- Depreciation expense
- Post-sales tax savings
- Non-mortgage-related expenses
- Capital gains
5. No More Building Change Approvals
Renting comes with rules and regulations for how your business can occupy the space. If/when your business expands or if physical changes to the building would benefit your business, you first have to go through approval with the owner.
If you own the commercial property, however, you are not required to obtain owner approval to make changes to the property. By being in control of your building, you can save time and needless delays as you decide what changes will best benefit your business and business plans.
6. You Own a Tangible Asset
Owning a physical asset is one of the most prominent perks of a CRE investment. Some investors may opt for tangible investments to diversify their portfolios as a hedge against economic uncertainty, according to Investopedia. While other forms of investments – such as bonds or mutual funds – may prove to be more inconsistent and can be traded amongst parties, tangible assets can be reliable and protected against inflation.
Thinking of Investing in Commercial Real Estate?
Purchasing commercial real estate can provide many advantages for business owners.
Read on to learn more about owning and occupying commercial real estate, here.
Consider Innovative Capital
At Innovative Capital, we provide our clients with a strategic advantage to meeting their business and real estate goals. We leverage your business needs to multiple lenders nationwide to find the best loan rate and term for your unique goals. Partnering with us provides the knowledge, network, and technology to help your clients, shop lenders, receive multiple quotes and negotiate the best loan.
Learn more about who we are, what we do, and what makes us different, here.