Commercial Real Estate is an excellent way to build wealth. It has an amazing potential for income and long term gain. Here are some of the components of investment real estate and how it can impact your future while positioning your family for long-term financial independence:
Building Equity by using Leverage: Leverage allows you to build equity with someone else’s money. Leverage can be an excellent tool as long as it is used conservatively and responsibly. Typically at least a 20% cash down payment is required by a lender, and a larger down payment simply decreases the risk of leverage.
Cashflow: A good investment property will do three things with regards to cashflow: First of all, it will pay all the expenses on the property. Secondly, it will service the debt on the property. Lastly, there should still be additional cashflow left over – this is typically known as “cash on cash” or the return your down payment is generating.
Depreciation: Depreciation is a deferred expense that allows the investor to lower the actual annual cashflow, thus reducing the tax liability on positive cashflow for that year.
Appreciation: As new construction costs continue to increase over time, existing properties typically appreciate. This is also due to increased rents over time, which should mean increased total cashflow, which in turn increases the property value.
Passive Ownership: Most commercial real estate investors have their own occupation, so it is very important to them that their investment can operate on its own. Professional management is a normal, assumed expense that is typically included in the evaluation of the investment opportunity.
To learn more about investing in commercial real estate, contact the team at VANTIS Commercial.