If you’re looking to build a legacy with investments, through using a Delaware statutory trust or otherwise, commercial real estate is a solid choice to consider. But if you’ve never looked into it before, there might be a few major concepts that you didn’t know about. Here are five things you didn’t know about investing in commercial real estate (that you need to know).
1. Depreciation
Many times, investors are so focused on their appreciation and capital gains in a property that they look past the depreciation sitting in front of them. What does depreciation mean exactly? The short answer is: tax incentive. Depreciation is a term referencing the normal wear and tear on a commercial building over a period of time that can be claimed as a “loss.” When reporting depreciation you will also lower your net income, and in turn lower the net taxes that you are expected to pay.
2. Long-Term Capital Gains
Capital gain is the profit made from selling your property. Long-term capital gains can be made on properties that have been held for more than one year-they also hold a lower tax rate than short term capital gains and you can use previous deductions to further lower the taxable amount.
3. 1031 Exchange
A 1031 exchange is when an investor exchanges one property asset for another and has limited or no tax (unlike the 1030 exchange) at the time of exchange. – in short this means that you are able to take your capital gains from one property to another and don’t have to pay taxes until you sell it. This is an excellent way to save money in the present and invest until you build more capital for the future! If you’ve not heard of this before, you may find something like 1031 exchange for dummies helpful for a deeper understanding. If you are planning on using this method for your next investment property, you may want to look for dst properties among the likes that will be appropriate.
4. Tax Deductions
Write-offs are your new best friend, and in commercial real estate investing, you will have many. There are write-offs for loan interest, operating expenses and repairs. For the complete tax code, visit the IRS website.
5. Appreciation
Over the long-term, commercial real estate investments tend to acquire value, even more so when you have gone down either one of the preferred equity vs. common equity routes, which only equals more appreciation of your property! So, why not put your equity into something that is proven to gain and invest in a tangible concept that will bring you security in the future?
Learn more about the services Coldwell Banker Commercial Elite can offer for all of your commercial real estate investments.
