23 Benefits of Investing in Commercial Real Estate of Los Angeles, Santa Monica and West Hollywood
November 20th, 2013 by Diane Moore
Commercial real estate provides people with the opportunity to make money in different ways. You can buy the property and then rent it for a continual monthly income from the rentals. There is also an option of purchasing the property, let it build equity and then sell it for a profit later on down the line. For those who have their own business, there is an opportunity to buy the property for running the business operations.
Commercial real estate is one of the best investments. Commercial property in Santa Monica, Los Angeles and West Hollywood is on the rise once again. Industrial, retail and office space are all showing rising rents and low vacancy rates. A well managed commercial property can offer a lot of advantages, including capital and income growth. Several investors may also be able to use their commercial real estate investment to reduce tax payable on their assessable income.
Since most commercial properties in Los Angeles, Santa Monica and West Hollywood enjoy prime locations, they are expected to appreciate with time. In addition, there are a lot of things that an investor can do to add value to his or her commercial property, such as reducing operating expenses and increasing rents. On the other hand, with a triple net lease, you can often get tenants to pay for the daily expenses of maintaining the building. With these two factors, Santa Monica, Los Angeles, and West Hollywood commercial real estate owners can not only witness the appreciation, but also not have to spend thousands of dollars to achieve it.
2. Cash flow
Although investors purchase houses and apartment buildings where they end up behind each month after paying their mortgage loans, this rarely happens with commercial real estate. In actual fact, most Los Angeles, Santa Monica, and West Hollywood commercial property loans are tied to a Debt Service Coverage Ratio which requires a property’s net operational income to be always higher than the loans’ payments, ensuring security for the bank as well as cash flow for the owner. Certainly, any investment carries the risk that its performance may depreciate, but on the whole, commercial property cash flows pretty well.
3. Tax Shelter
Since commercial property appreciation is only taxed when it is sold, it permits the commercial real estate owner to create equity tax free. Also, you can add a 1031 exchange and avoid payment of taxes when you sell your commercial property. Your returns are always secured at sale when you purchase more investment properties.
4. Monthly Income
The commercial property that you purchase for your own business operations usually has a lot of space than you require for your daily operations. You can earn monthly income by leasing out the parts of the property that you’re not using.
5. Secure Investments
Investing your wealth in commercial real estate is a secure investment for a variety of reasons: the rental payment covers the largest cost of the mortgage, the building, all or most of the working expenses are usually paid by the tenants. Most commercial property rents usually increase with an increase in CPI (Consumer Price Index), therefore, any increase that you incur in your expenses is normally covered by the increase in rent to the tenants.
6. Real Estate Association
Somewhat different from the usual homeowner association whereby every person should be a member of the association. Commercial real estate association has a board of directors who are elected by the commercial properties owners, to work with the real estate manager to run the day to day activities of the commercial real estate business. What’s more, the board of directors acts to put into effect rules and regulations and make decisions regarding the generally maintenance of the property.
7. Amenities Nearby
Leasing a commercial property in Los Angeles indicates outstanding amenities nearby. Shopping venues like South Coast Plaza and restaurants such as Water Grill, Drago Centro, and Bottega Louie and other attractive places such as The Getty Center makes it possible to pull in customers in the neighborhood who may be in LA on an entirely different purpose.
8. Greater Income
Investing in commercial real estate in Los Angeles, Santa Monica and West Hollywood can earn a better income than investing in the residential property. Even though commercial property is associated with a decreased capital growth rate, it is however, beneficial since on average the net worth returns on commercial property investments have increased by 20 percent.
9. Duration of The Agreement of Tenancy
The normal six month agreement on a residential building indicates a lot of responsibility for a landlord but minimum proceeds. In case of a commercial real estate, the agreement normally lasts between 5-15 years, which gives an investor guaranteed profits for a long period of time. The other advantage is that long-term leases are usually reviewed at regular intervals (3-5 years) and are usually attached with inflation in a price.
10. More Protection
Commercial real estate properties give more protection in case a tenant fails to pay the rent. This is because most commercial property leases are on the contract basis, which means that the owner gets more protection.
11. Multiple Options for Revenue
You can buy a commercial property in Los Angeles, Santa Monica, or West Hollywood, let it build equity and then sell it for a profit later on down the line.
12. Excellent Public Transportation
Los Angeles, Santa Monica and West Hollywood have another great aspect, the option of excellent public transportation. Metro train, Taxis, Buses and generally all forms of public transport are readily available in Los Angeles, Santa Monica and West Hollywood. This allows business owners, their clients and staff to reach their places of work without hassles.
13. Predicted Increase in Inflation
There is a high possibility that commercial property rates in Los Angeles, Santa Monica and West Hollywood will increase because of the predicted inflationary state. The increase in commercial real estate property rate may not be directly related to the appreciation or increase in the value of commercial properties. Nevertheless, in the long run, the cost of the property will boost as has been the case over the previous years. Investors should make use of this opportune time to reap numerous profits and benefits in the future.
14. Entertainment Destination
West Hollywood boasts of being one of the best entertainment hubs for people from all over the planet. Places like Robertson Boulevard, Sunset Plaza, comedy Store, Laugh Factory, Shoreham Towers, Pacific Design Center, and Sundance Cinema pulls in a lot of visitors both tourist and local. This provides a great opportunity for opening up a new business, such as a hotel or a restaurant or some entertainment site where business owners would readily draw up a huge customer base.
Los Angeles, Santa Monica and West Hollywood offer business owners proximity to basic amenities. From high class restaurants to world class shopping centers, everything is located close by. Not only is this advantageous to business owners and their employees, but also to their customer base who frequently crowd the stores or offices.
16. Add Additional Properties to Your Investment Portfolio
Commercial real estate investment is an ideal way to add extra properties to your investment portfolio. Often investors tend to forget that there are opportunities outside of the residential realty market. Having commercial real estate properties adds some options and variety to your portfolio. Commercial properties can range from office buildings to apartment properties.
There is commercial real estate property available in almost every part of Los Angeles, Santa Monica, or West Hollywood, and there is more than you may think. It’s vital to keep your options wide and think about every commercial property investment that comes your way. It may not be easy to find commercial real estate, but it can be such an ideal investment.
18. Ability to Get Free Equity
One of the greatest advantages of commercial real estate investment is that your tenants will pay for your property mortgage each month, plus all the other rental property operating cost. The outcome is a steady decline in your mortgage balance as well as a continuing increase in your property’s equity, over time.
19. Ability to Use Leverage to Reduce Your Cash Expense
Ability to use leverage to minimize your cash outlay is also one of the ultimate benefits of commercial real estate investing. Leverage gives you power to own 100 percent of a building even if you may only be able to pay 20 percent of the total cost. This makes commercial real estate investing unique when compared to other investments options.
20. Slow and Steady
The stock market can experience wild fluctuations on a day to day basis. On the other hand, commercial real estate tends to have a steadier trend either down or up. If you have a look at the previous performance and investments conducted through a development company, you will notice that commercial real estate investment tends to be steadier. This helps to give real estate investors the certainty that commercial real estate can help to provide dependable steady proceeds without catastrophic losses.
As a common rule, so far as investments go, something is normally on the rise. This is usually true even within sub-sections of an investment set. Commercial real estate investment tends to be in its own class and not directly related to the bond and stock markets. Commercial real estate investment can act as a compliment to your diversification plan to help protect you from wild stock and bond markets fluctuations.
22. Inflation Resistance
Since your every month mortgage payment is fixed, there’s inflation resistance with commercial real estate. Your monthly mortgage payment is not affected by inflation unlike goods and services whose prices usually go up in times of inflation. You may actually increase your income by increasing the monthly rent that you receive from your tenants.
23. Safety Net
Since many commercial real estate properties offer the option to rent more than one unit at any given time, the chances of total vacancy are usually slim. Compare this situation to renting a single family house. If the tenant fails to pay his or her rent, the cash flow is dried-up by 100 percent. Conversely, only a percentage of the total cash flow will be eliminated when a tenant fails to pay his or her rent in a commercial real estate property.
Investing in commercial real estate of Los Angeles, Santa Monica, and West Hollywood is a secure investment for various reasons: tenant improvements are usually paid by the tenants, most commercial real estate rents increase with an increase in the Consumer Price Index (CPI) thus any increase that you have in your operating cost is usually covered by the increase in rent to your tenants, the tenants rents payment take care of the largest cost of the building, the mortgage, and finally, most, or all the expenses are usually paid out by the tenants through NNN or NN leases.
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