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How To Expand and Safeguard Your Commercial Real Estate Wealth – Part 2 of 4
Match Real Estate Investments to your Tax Bracket and Cash Flow Requirements
As a rule, newer properties that are net leased to strong national tenants provide more stable cash flow but with limited upside potential. Net leased retail properties have been very popular with retirees for many years due to their stability and limited management responsibilities associated with newer properties. At the other end of the spectrum is raw land, which in most cases is a negative cash flow investment through the holding period (remember property taxes and levies) and provides very limited tax benefits (depreciation can only be taken on structures, not land). Well located land however can have phenomenal upside potential for patient investors if it has a high potential for development in the path of growth.
Carefully consider and analyze the “best case”, “expected” and “worst case” financial scenarios for the property. Would the “worst case” scenario force you to sell the property to meet personal financial obligations?
Understand the Difference Between Property Management, Asset Management and Portfolio Management
Property Management: Revolves around the regular, ongoing operations of an investment property. Property management companies often specialize in particular property types, for example shopping center management. Common duties are collecting rents from tenants, ensuring that tenants are in compliance with their lease terms, paying expenses of property, preparing monthly or quarterly reports of property operations and cash flow. May or may not do leasing activities on property. Typical fees for property managers run between 3 to 5% of the gross rents collected.
Asset Management: Provides strategic direction for a particular property based on the stated goals and requirements of ownership. Ensures that property management and leasing activities and proper and aligned with strategy. Often requires a Leasing Broker who supervises budget preparation by Property Manager. Reviews and approves all potential new leases, construction and capital improvements to the property. Asset managment fees customarily run between 1-2% of the gross rents collected and are usually only done for large investment properties.
Portfolio Management: Ongoing analysis of multiple real estate investments, associated financing and structure, buy and sell decisions, and 1031 Tax Deferred Exchange decisions, as it relates to the unique financial and personal goals of each investor. Real estate portfolio management is the most overlooked of the three components and is critical to the long term success of real estate investors.
Read Part 1. Read Part 2. Read Part 3.
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Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.
Commercial Real Estate, Commercial Real Estate Investment Strategies
Commercial Buildings, Commercial Real Estate Investment Advisory, Commercial Real Estate Investment Strategy, Increase Savings, Industrial Real Estate Investment, Investing, Investing Tips, Wealth-building Strategy
I agree. Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against. performance. It is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.