The Basics of Investing in Commercial Real Estate | Pendleton Financing
Many businessmen are aware that one of the best ways to generate wealth as an investor is to become involved with commercial real estate. If you’re interested in going this route, here are five tips you should keep in mind which will help you become a more successful investor.
Understand Cash Flow Versus Appreciation
Two of the best ways of making money from commercial real estate investments are through cash flow income and real estate appreciation. If you own an apartment complex and receive monthly rents from your tenants, you’ll have steady cash flow income. If you purchase properties simply to have them appreciate in value, you will eventually realize a significant profit from it, although you may have to wait a while.
It’s definitely in your best interest to diversify your portfolio, so as to reduce your exposure to risk. In order to get the most from your money, you should develop a portfolio which includes both low-risk investments and high-risk investments.
There are two main kinds of taxes, those being capital gains taxes and income taxes, which will affect your investment revenue. Be aware that when you have regular monthly income from your property, there will be income tax on it, and when you sell your property for profit, there will be capital gains taxes on it.
1% Investing Rule
This rule states that any property should be considered a good investment if it earns you 1% of the purchase price. For instance, if you paid $100,000 to buy an apartment building and you are receiving $1,000 a month of income from it, you should consider it a good investment.
It’s a good move to invest in both passive and active investments. An active investment is one which requires hands-on activities in order to keep a property operational. Passive investments are those like investing in a mortgage bond, where no personal labor or activity is involved.
Need capital for a real estate investment?
If you need some working capital to pull off an important real estate transaction, we may be able to provide financial assistance. Contact us at Pendleton Commercial Financing so we can review some possibilities which may be open to you.