Feb

12

Why Investment Real Estate?

Filed Under Local Market, National Market 

Investing in commercial real estate is attractive for a variety of reasons. Commercial real estate investment offers a number of distinct advantages, several of which are discussed briefly below.

1. Positive Cash Flow Investment in income-producing properties often generates an income stream that can be used to fund different needs, such as retirement.

2. Tax Advantages As a result of deferred taxation, the after-tax return on commercial real estate typically is greater than an alternative investment with a comparable before-tax yield. The cost-recovery deduction normally defers (and saves) taxes, an effect that is magnified by debt financing.

3. Appreciation In addition to the periodic cash flows, the sale (or reversion) cash flow of a property can represent an increase in value.

4. Inflation Hedge Real estate investment typically has been an excellent hedge against inflation.

5. Diversification Commercial real estate offers diversification from other investments such as securities (stocks and bonds) and commodities, which have different risks.

6. Psychological Benefits The fact that real estate is a physical asset (i.e., bricks and mortar) provides a certain amount of psychological security over more nonphysical assets such as securities.

7. Positive Leverage/Principal Reduction In many cases, an investor may obtain financing with a lower interest rate than the overall un-leveraged yield of the property. This will increase the yield to equity, including reduction of the mortgage balance.

Credit: CCIM Institute

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