Discover 4 major economic forces creating urgency for smart investors to invest in commercial real estate right now! Have urgency today or you’ll regret it later. Procrastinate at your own peril. Here’s why:
1. Rising Interest Rates
Inflation is out of control; prices are soaring, and the value of the dollar is declining rapidly. This means your savings are worth less and the cost of commercial real estate ownership has increased. Everything from nails to appliances is more expensive! To counter the soaring inflation, interest rates are being raised. This poses two challenges for commercial real estate investors. As interest rates are raised, your mortgage payments increase, meaning you won’t be able to invest in as many properties. And with higher monthly mortgage payments, your cashflow will decrease, leading to a lower return on investment. Rising interest rates have a tremendous impact on the commercial investor and are one of the most compelling reasons to invest in commercial real estate now!
2. Cost Segregation: Maximize Income Deductions
Cost segregation is the most powerful tax saving tool available to commercial real estate investors. It allows you to accelerate the amount of depreciation you can claim on your taxes in the first few years you own the property. Instead of depreciating it over twenty-seven and a half years, you can depreciate the building and contents over five years.
Bonus depreciation was implemented in the Jobs Act. It allows you to take the entire cost segregation depreciation in year one. In the first year that you own the property you can write-off 100% of the depreciation against your adjusted gross income. Why is this a BIG reason to buy now? Because 2022 is the last year you can take 100% of that cost segregation and write it off in the first year. In 2023 it will drop by 20% and continue each year until it is phased out. That means you need to buy your commercial property, cash flow, and do a cost segregation study NOW. Get that tax refund and buy another property now because the bonus depreciation is a temporary measure.
Again, cost segregation is a way to maximize your income deductions and taking advantage of the bonus depreciation is a BIG reason to invest in commercial real estate now because as commercial property investors often our biggest expense on our properties are the taxes.
Further teaching on commercial real estate tax strategies and a more comprehensive look at Cost Segregation:
Tax Benefits of Commercial Real Estate
Cost Segregation Made Simple
3. Rental Rates are Skyrocketing
Rental rates are increasing all around the country, and as a result so are property values. Is it still a good buying environment? Absolutely. What we’re looking for in this kind of market are value-add opportunities. What is a value-add property? Here’s an example of how it works:
10-Unit Apartment Building: Over time you raise the rents $150/month.
Annual Increase: With 10 units, that’s an extra $18,000 per year.
Property Value: Your NOI has increased $18,000. In a 6% cap rate area, you divide $18,000 by your 6% cap rate and the result is a forced appreciation of $300,000.
That is a phenomenal increase in value and it is possible in this market where rental rates are skyrocketing. Where do you find those real estate deals? You’ll find them off-market. At Commercial Property Advisors, we train our students how to find sellers and how to work with them, developing a relationship, and then creating upside within the deal. For examples of real-world value-add deals, check out these protégé testimonials. These are deals are recent and prove that even in today’s market, you can find amazing value-add opportunities:
Waiter Buys 90-Unit Apartment No Money Down
Building a Self-Storage Business in Today’s Market
What a Great Commercial Deal Looks Like
4. Increasing Demand for Apartments and Housing
Will rents continue to increase or is the rental market going to plateau? Well, there are four factors that seem to indicate demand for apartments is increasing and rents will continue to climb.
- Home builders can’t keep up with demand: Currently in the U.S., we are between four to five million residential units away from satisfying the demand. When will the real estate supply match the demand? It could be years and with today’s economic conditions, I believe it will get worse.
- Home ownership is out of reach from many people: How many people, young or old can afford even the down payment to purchase a house when the home prices are out of sight? Those people have no choice but to remain renters.
- Rising interest rates have reduced the ability for people to qualify for a mortgage: As interest rates go up, the monthly mortgage increases, and the less home people qualify for until basically, with a fixed income, they can no longer qualify for an average home. Those people will remain a renter.
- Inflation is here to stay for now: That means the ability to save for a home is almost impossible because in this inflationary environment, the money put aside for a down payment on a home is now going to rising gas prices, more expensive groceries, and increased energy bills. Good luck buying a car now, as car prices are through the roof. Just being in this inflationary environment is going to keep your tenants as renters.
Peter, Thank you so much for your professional advice. Your updates are so informative.
Hi Peter
Can I speak to you and become a student of yours?
Apply to my Protege Program
How can I get help form you?
Apply to be a my next Protege here.
$262,500 per unit? OUCH! This is a great example of…your problem is NOT money/financing; it’s finding decent deals. And proves why beginners need a mentor. You don’t know what you don’t know.
Invaluable advice per usual Peter and always broken down in the most eloquent and rudimentary format. I appreciate your expertise and willingness to help so many others achieve their dreams and change the trajectory of their future lives. Currently working extremely hard to be able to work with you directly in the Protege program. God bless.
Great job
Thanks Very informed always bringing latest updates economic Housing
I recently turned 70yrs. Young a broker for 40yrs. I have o few yrs.left to make big money I would like to meet with you. Is that possible.
Peter , this is a great article.
How could I talk to you directly about mentorship?
Apply to be my next Protege
I have always enjoyed the knowledge that you share with me and others. Thanks
Thank you so much for your advice.
Hi Peter, What about buying relatively inexpensive homes and creating lease to own deals …..since people cant qualify for bank loans …especially now with rising rates. Thanks
It’s extremely inefficient to acquire single family rentals; roofs, exterior, yards, etc. The private equity funds that are acquiring SFRs in bulk are happy with very low returns.
Apartments are MUCH more efficient and economically productive.
Meanwhile, offering “lease to own” has always been frothy legal waters. “Tenant Buyers”, as they are called, are considering borrowers of an installment sale in many courts and therefore if they don’t pay, you have to foreclose, which can take a year or longer to evict. Usually, the only way to get them out any sooner is to give back the “non-refundable option payment”. There are horror stories that we have confirmed of Tenant Buyers living in houses rent free for many years because the foreclosure court won’t take the case and the eviction court won’t take it either.
Excellent info
I agree with you, I’m in the process of learning how CPA do what they do. Watching the videos for now and looking forward to the rest of my learning materials to arrive. The videos have been great information!!!
You are amazing I just love to read your email because everything is true nice to hear from you
Mr. Harris, thank you taking the time to teach. Question: Years 2020 and 2021, Assessed Value for a vacate acreage 0.172, was $7,500.00. The same size lot in Franklin, Virginia, Assessed Value is $8,300.00 for the year 2022. Later, the Real Estate Taxes will adjust to this current Assessed Value, correct? Please advise.
I’ve done research on requirements for commercial realestate loan and it requires the borrower to show they have experience in owning and managing multi-units or multiple properties before you qualify for a commercial realestate loan. The type of loan I am referring to is for units that are between 5-10 units. Does your training discuss how to qualify for a commercial realestate loan from a bank?
We go WAY beyond that individual aspect of commercial lending. What you just described is a tiny aspect of commercial real estate financing.
Excellent advise
What do you think about hotels? Would this be a good investment?
COVID fundamentally changed travel accommodations. Travelers prefer vacation rental homes (AirBNB, VRBO) over hotels. There is always opportunity in any niche if you look hard enough, but you are probably better off with vacation rentals if you want to invest in overnight lodging. Remember that in bad times, people don’t have to travel, but they always need a roof over their heads.
I like to learn more about investing in commercial RE now. Thank you.
Take this free course: Commercial Real Estate Investing for Beginners
Hi Mr. Harris,
My name is Jenny Nguyen, I will be returning To San Diego in May 18, next month. I have been following you for years, I finish your last video that you encouraged us should acquire Apartment by end of this years with 4 reasons that you mentioned.
My plan is hoping able to purchase a multi unit Apartment by this year, I have been buy and sell 4 pieces of land and 3 residential detached houses with good profit. As apartment is not my cup of tea yet, I have greatly respect your success and experience in this field, I hope with your help as my mentor will lead me to reach my goal. Hope can hear reply soon.
Thanks in advance
Sincerely yours,
Jenny Nguyen