What to Look for in Commercial Real Estate Investments
When it comes to investing your money, there is a wide range of avenues that you can choose from. Commercial real estate is becoming more popular as an investment option in Canada. Whether you are looking for a space for your business operations or looking to gain a substantial return, commercial real estate investments provide the platform for doing so.
These are big investments so it helps to have the knowledge and understanding of the factors that raise your property value. From an investor’s perspective, the objective would be to see the real estate property continue to rise in value, or at the very least — not depreciate which is why it is important to see where you should be cautious when investing.
Keep reading to learn what you should be looking for when it comes to commercial real estate investments:
Maximizing your Return
When it comes to your investments, there are multiple factors that allow you to maximize your return. These are important to consider before and during investing for evaluating risk and outcome.
Zoning by-laws are important to consider before investing as they can impose rules and regulations that restrict the versatility of your investment. For example, certain buildings are zoned to be for manufacturing only which means that it cannot be used for other purposes.
Commercial real estate that has multi-use zoning allows your investment to have that ability to leverage as it can serve multiple purposes.
As attractive as a real estate company can look, as an investor, it is best to look from the market’s perspective. Many investors make the mistake of assuming that the more property you purchase, the higher the return. However, the market is what determines the return you will get.
For example, many Canadian businesses are start-ups or small enterprises which implies they do not need large office spaces to work with. Anything that is above 50,000 square feet will provide a small market to work with.
Separate Holding Company for your Acquisition
It is advised to place commercial real estate investments into a holding company outside of your operating business because this will allow you to eventually sell that investment. Buyers may only purchase it for the operating company if the two are attached. Depending on the situation and purpose of investment, considering a holding company is important.
An alternative perspective of this decision is that the owner of the business can sell their operations later on and hold on to the real estate investment as a source of retirement income. This allows you to continue to have income whilst selling your business.
World-Class Green Certifications (LEED)
The Leadership in Energy and Environmental Design (LEED) certification is given to the buildings, homes, or communities that are designed using strategies aimed at achieving high performance in human and environmental health, sustainable site development, water savings, energy efficiency policies, etc. Commercial real estate that is LEED-certified may increase the property value.
Initially, the cost to obtain the buildings will be higher but through further improving energy efficiency and air quality, you will be eligible for financial subsidies and grants based on your LEED certification. If financials are a barrier for obtaining the LEED certification, opting for green initiatives is also a great way to get your real estate value increased.
Experienced Commercial Real Estate Brokers
When it comes to the nitty-gritty details of investments, you may overlook certain aspects without considering future impact and associations that come with it. Research and experience are important to make secure decisions on your investment.
Commercial real estate brokers have the knowledge base to provide concrete information on the small details you might look over, that will impact the value of your property. They will also assess the market to understand the demand and future growth expected, which is why they are valuable to consult before investing.
Investments in Commercial Real Estate
Compared to alternative investment routes, commercial real estate is unique in the regard that it is a hybrid investment of fixed deposits and debt mutual funds and equity with higher upside possibilities and a lower downside risk.
With a monthly rental yield of 8%, which increases each year, and a share of the capital appreciation, commercial property investors have the opportunity to earn a profitable return. With returns between 8-25% each year, it presents itself as a more beneficial investment compared to fixed deposits as the rent escalation will protect your investment from inflation and the lower tax regime will protect your post tax returns. Capital gains and returns are only taxed at 20% and 21%, respectively.
If you are looking to invest within the commercial real estate field, contact our team in Canada for more information.