Are you considering investing in Southern California commercial real estate? The commercial real estate market is certainly different than other investment options like residential flips, rental houses, real estate stocks, REITs, ETFs and crowdfunded deals. Because it is a unique type of investment, commercial real estate has its own important considerations. To help you navigate through these considerations and determine whether commercial real estate investing in SoCal is right for you, check out some of our recommendations, below.
First and foremost, it is important to work with a trusted and experienced commercial real estate agent. Your agent plays a pivotal role throughout the lifecycle of your investment. They can even help you make the first decision, whether commercial real estate investing in Southern California is right for you.
What is commercial real estate investing?
Commercial real estate investing, whether in Southern California or elsewhere, is investing in properties that are designed to generate revenue. There are many types of commercial properties in which you can invest. These include:
- Retail stores
- Hospitality industry spaces
- Office buildings and complexes
- Industrial warehouses
Within these types of properties are many sub-categories like storage facilities, healthcare facilities, restaurants and hotels. This is only a few of many types of properties available on the commercial market today.
When you invest in commercial real estate (CRE) in Southern California, you have a purpose in mind. That purpose is almost always to make money. If you live out-of-state and invest in Southern California commercial property, you typically do so to increase your cashflow. On the other hand, someone living in SoCal will benefit more from CRE investing because of the property’s long-term appreciation while renting out space covers the loan balance. Wherever you are living now, it is generally easier to invest in local commercial properties than to seek long-distance investments.
Why should I consider investing in Southern California?
Commercial real estate investing can provide great financial returns. Below are the most common reasons why people put their money into CRE and maybe why you should, too.
High Margins
People typically make investments to make money, right? Well, commercial real estate in SoCal provides high income potential.Commercial properties sell and rent at a premium in California, particularly in areas like the San Fernando Valley. This opens you up to potential to make thousands upon thousands of dollars where the potential for the same type of property in another state might only be in the hundreds. These are the higher margins of commercial real estate investing in Southern California.
Tax Benefits
Depreciation is one of the biggest tax benefits realized through commercial real estate investing. Depreciation enables you to deduct some of the property value from your taxable income. As a result, your tax burden decreases. When selling your commercial property, you can also avoid capital gains taxes through 1031 exchanges. Of course, all of these tax strategies require the advice of a tax professional.Availability
Although residential real estate competition is soaring now and driving prices up, the commercial market is on a downward trend. So you can typically find commercial real estate investment opportunities much more easily now than in the recent past. You can also get more property for your money.Lower Tenant Turnover
In the residential real estate leasing market, tenants typically come and go as part of annual lease agreements. But commercial tenants typically sign leases of at least three years in duration. As a result, you experience less hassle and marketing cost on top of more stable cash flow.Less Maintenance and Upkeep
Thanks to triple-net leases, most property-related maintenance, upkeep and improvements are the tenant’s responsibility. The tenant typically covers general maintenance, insurance, taxes and utilities.Because you lease to businesses as part of commercial real estate investing, you also have fewer headaches than when leasing to residential renters. Businesses worry more about their reputation and overall image. This drives them to keep the property in good repair. Some improvements made by tenants can even increase your property value.
Better Work-Life Balance
Commercial real estate investing takes work. But there is far less work required than for residential investments. Additionally, your commercial tenants typically work within the 9 to 5 mindset, enabling you to enjoy more work-life balance, time off and daily structure.Portfolio Diversification
Portfolio diversification is a great reason for going into commercial real estate investments. There are so many unknown and unpredictable factors that can affect particular types of investments, so it helps to have a diverse portfolio. That way, when odd circumstances arise like the Covid-19 epidemic, you do not have all of your money in one channel.Commercial Real Estate Has Proven Benefits
Commercial real estate is a proven investment. Among the wealthiest Americans, the majority put some of their money into commercial properties. Many have built their empires on this sector of real estate and keep it thriving by continuing their investments. You can certainly do the same.