YOU PURCHASE REAL ESTATE FOR THE APPRECIATION…
Paul Levine
Commercial Real Estate Advisor and Managing Member @ LS Property Partners LLC| Retired CPA with over 50 years of income tax experience that no other Commercial Realtor has, Income Tax Consultant and unmatched Creatively!
?PART VII…
If you are looking to purchase Commercial Real Estate for Appreciation, do not buy Self-Storage units because they give you some very nice cash flow but not great appreciation.? If you want safety then purchase a sale and leaseback property because it is safe and, as my partner calls it, it is mail-box money.? That is also called a NNN lease (or a triple net lease).? But, if you are looking for appreciation, look at Multi-Family Housing or, as they are commonly known as, Apartment Buildings.
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You gain Appreciation as the value of the property goes up, increases in value, from the cost that you purchased it or the price you built it for.? And the nice thing about appreciation is that you save income taxes.? You see, cash flow is what the tax code calls “ordinary income”.? It can be currently taxed, based on a couple of factors, as high as 37%.? But appreciation is considered Capital Gain Income, and is taxed at 20%.? That is a savings of 17% (for those of you who are mathematically challenged) and that is a nice savings.
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The value of the apartment buildings goes up as the neighborhood matures and fills out, as the rents increase, as the building is properly maintained and other similar reasons.? Basically, it says that you are a concerned owner who maintains good renter relations and cares about his or her property, the value of the property will increase.? Because the basic three principles of owning commercial real estate are still, LOCATION, LOCATION and LOCATION!!!
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Another thing is that you can set yourself up for immediate income.? You create immediate income when you purchase land and BUILD an apartment building or any piece of commercial real estate.? Say that you build an apartment building of 10 units, and each unit/door is valued at maybe $400K.? That gives you a value of $4MM.? But the day that you complete building the building, the value, based on a market valuation, may be worth $4.5MM or more, and you just made at least half of a million dollars.
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However, you have to consider the time it takes to build the project and the lost rent you would have made when purchasing an existing facility.? The Reverand Dr. Martin Luther King had a dream, and I have one, too.? And I will never make fun of The Reverand; I give him all the respect and love that I can, but “I HAVE A DREAM” as well.? I want to build a multi-unit apartment building and have all of the units have access to the apartments from the outside or on the street from a gated courtyard.? I would like some plants and small trees in front of the units, so it looks like you have a condominium.? The units will be 2 or 3 stories with washers and dryers in the units with all upgraded appliances.? The units will be maybe 1,500 to 1,750 square feet, like a little community.? It must be built in Southern California because the rents will have to be high, like $7,000 to $8,000 monthly.? And those of you in the South or the Mid-West are saying those rents are impossible.? Well come to Los Angeles for a week and I will be glad to show you some apartment complexes where those rents might seem very reasonable or even a bit low.
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And remember that we are talking about? APPRECIATION and those apartments will appreciate like they were shot out of a canon!!!
Cost Segregation Specialist CSSI
3 个月Appreciation Appreciation Appreciation.. Pros of 10-30 Unit Multifamily Investments: Scalability: Larger properties allow for greater scalability, potentially leading to higher rental income and property appreciation over time. Efficiency: Operating costs can be spread across a larger number of units, which may result in cost savings and improved efficiency. A cost segregation study is an essential tool for maximizing depreciation deductions and reducing taxable income for commercial property owners, including B+ or A class multifamily properties. Although the exact percentage of the property's value that can be reclassified for accelerated depreciation through a cost segregation study depends on several factors, such as construction type, quality of finishes, and the nature of the property's systems and amenities, there are some general ranges we can consider. On average, a cost segregation study can identify and reclassify about 20% to 40% of a property's initial cost basis into shorter depreciation categories, such as 5, 7, or 15 years. This means a significant portion of the property's value can be depreciated more quickly, resulting in higher tax deductions and improved cash flow.