Gone are the days when commercial real estate investment in Southern Utah was primarily done by locals.
With St. George showing up consistently in the top 10 fastest growing communities in America, many investors from out of the area are taking notice, increasing the competition for commercial investment properties.
Commercial real estate investment properties range from traditional retail centers, multi-family, hotels & hospitality, industrial, and office properties, to newer classes of investments like senior housing facilities and vacation rentals (VRBOs).
So now you might be wondering how you can invest in commercial real estate?
Before diving in to the “how” of investing in commercial real estate, first let’s discuss some of the common ways to invest in commercial real estate:
Outright Property Ownership
Outright ownership allows investors to purchase commercial real estate property in Utah and operate it all by themselves or with property management in place.
If you have the money to invest in a property, an eye for a deal, and the readiness to become a landlord, then this option might just be for you.
But, given the high cost of commercial real estate, outright single ownership might not be realistic.
Partnership or LLC
Partnering with other investors allows one to purchase an equity stake in commercial real estate property in Southern Utah by pooling with other investors in a partnership such as a limited liability company.
There are various partnership structures that exist, some of which are described below. The benefit of partnering to purchase real estate is that it allows an investor the opportunity to own real estate that they may not otherwise be able to afford.
It also spreads out ownership risk to other partners in case of a large capital call, major repair, extensive tenant improvement or re-tenanting cost, or extended vacancy, helping investors better weather the ups and downs in commercial real estate.
The downside of owning a property with partners is that partners may have other goals or expectations in mind. It also spreads out decision making capability which could slow or hinder the process or direction of a property. Pick your partners wisely.
Tenant In Common (TIC)
A Tenant In Common, or “TIC” structure is where two or more people have common ownership in a property. This ownership can consist of a mix of individuals and entities, such as an LLC that has one or individuals bundled into a limited liability company.
A TIC structure provides several advantages, one of which is to allow individuals and entities to come in and out of an investment property with 1031 funds, while the other individual or entities may choose to simply cash out.
This method of investment offers the minimum amount needed to be a part property owner which is far less than outright property ownership.
Crowdfunding involves handpicking projects that align with your financial goals alongside other willing investors.
There are several crowdfunding sites where commercial real estate property is now listed, finding opportunities is easier.
This is a relatively new investment vehicle and investors should make sure and do their homework first.
Publicly Traded Real estate Investment Trust (REIT):
This case allows investors to buy shares in REIT that are owners of different commercial real estate properties that yield income. The investor then stands the chance to earn from the property on an ongoing basis.
It is also important to add that an investor has no control over what property the REIT will invest his money.
Having understood the common ways to invest in commercial real estate in Utah, there are important reasons why investing in commercial real estate should be on your priority list:
As an asset class, the behavior of commercial real estate is different from bonds or stocks.
The correlation of commercial real estate in Southern Utah and the stock market can be low, depending on the sector.
The meaning is that there may not be an impact on your real estate investment even if there is a drop in the global equity market.
Consistent Cash Flow
One of the invaluable benefits of investing in commercial real estate in Southern Utah is that it offers you income in the present and also asset appreciation in the future.
The return in commercial real estate can be significant and the cash flow can be a nice steady stream. Rental income from the property can provide a stabile and long term source of cash flow providing the ability to acquire additional commercial investment real estate.
Typically, tenants have long term commitments on their leases which can help reduce cash flow volatility.
Most lease agreements fall between 3 to 5 years with some extending for longer. If tenants are kept, the cash flow stays.
These longer term lease agreements mean that property values become less volatile and reactive than a stock on a daily or monthly basis as the impact of current news and events can have less of an immediate.
Commercial real estate is a hard asset. While it seems that stocks can go “poof” in a day, real estate is a hard asset with intrinsic values (both the land and building).
Hard assets can be used for the production of other services or goods. The assets can also be remodeled to maximize occupancy and increase value.
Hedge Against Inflation
Commercial real estate usually benefits from the increase in the price of foods and services.
This is because an increase in the amount property owners can charge for space or pay for rent, there is a significant increase in what you can earn.
Potential Tax Benefits
Owning commercial real estate gives you the chance to claim deductions related to interest expense, depreciation, repairs, and more if properly structured.
Not only are there tax advantages from the ownership or operation of commercial real estate, programs such as a 1031 tax deferred exchange can help investors defer capital gains tax until they decide to capture the gain, or cash out an investment once in a lower tax bracket.
We hope that if you’re looking at investing in commercial real estate anywhere in the Southern Utah or Southern Nevada area, you think of the experts at LINX Commercial Real Estate to represent you in your purchase.
We are brokers who provide guidance for investing in commercial real estate. We’re available from 8:30am to 5 pm Monday through Friday- come on in, or give us a ring!
Call now to see how we can help you (435) 359-4900.