Buying Real Estate Tips

Buying or leasing office space is a much different situation than buying or leasing a home. Over the past couple years, corporate real estatewas doing really well as businesses were booming and filling up their space quickly. However, with the economy now businesses are consolidating and getting rid of space, so things have changed significantly.

For people managing corporate real estate or handling office leasing they are going to be in for much tougher negotiations. Rental rates are at a much lower rate than they were a few years ago and companies may be less inclined to sign a long-term contract.  Companies are doing everything they can to explore cost-cutting measures. Even the simple office supplies that weren’t a big deal to purchase in the past may now need management approval.

This type of leasing climate is especially good for those companies who know they are going to weather this economic downturn just fine. Yes, there are a few out there still making money. These companies can take advantage of the lower rates and the many incentives that are being provided. If they can take advantage of a longer term lease they may end up saving a lot of money. Tenants are looking for the best deal when they look for office space and landlords are really going to the extra mile to lock them in.

Lease negotiations are in the tenant’s court right now. With discounted rent or even free rent for a period of time, this is a good time to be searching for office space. Landlords that are struggling to find tenants may offer a variety of great deals such as paying for the space to be renovated or providing the options for additional build-outs on the property. Further, landlords are offering much more flexibility with the term of the lease. In good markets, landlords might be especially stringent when it comes to lease terms and getting out of a lease early. However, now they are much more willing to talk about ending leases early, which may be a cost savings to tenants paying for unnecessary space. Tenants are also setting leases with shorter renewal options to allow for better positioning when the market does improve. While they may be cutting costs now, most companies are looking forward to a day when they can get back to normal, hire more employees and re-fill up that space they just vacated.

Even though the economy has many wishing for jobs, grumbling about unemployment or afraid for the days to come, it also holds a lot of cost savings measures of which business should take advantage. With the better lease rates, more flexibility in negotiation and the incredible incentives on the table, it is a no brainer for companies to take advantage and save some money. We won’t always be in a recession; companies won’t always be struggling to fill their office space. However, right now, for both landlords and tenants it is a very different market. And, while tomorrow may change things for the better. Today, companies should stop and look at the many ways they can make choices today to improve their financial picture tomorrow, especially when it comes to their office space.

Investors typically choose real estate for a number of reasons: cash flow, appreciation, tax benefits, and leverage.  A real estate investor holds property for personal or commercial investment reasons.  This differs from real estate dealer who holds property primarily for resale to potential clients.  An active investor typically buys a property and then makes repairs or improvements with the intention of selling the property for a profit.  A passive investor usually hires an investing firm to find and manage potential profitable opportunities, and is not actively involved in any improvements or negotiations related to the property.  Unlike a professional realtor who has to pass a series of exams and be licensed by local and state agencies, an investor simply needs capital and confidence. 

By putting down payments on a real estate transaction, an investor can significantly increase his profit percent and better the terms of the financing loans.  By bettering the terms of the loan, an investor can increase his available cash for other transactions, thus increasing potential earnings exponentially.  This process creates a strong cash flow.  This cash flow is very enticing to real estate investors.

Barring any unforeseen declinations in quality, real estate, unlike a car, generally appreciates in value.  This means that once a property is purchased, the value of that property steadily increases over time.  Residential real estate is especially prone to this process.  This is so because residences are comparatively priced.  This means that the value of a property is largely dependent on the value of the surrounding properties.  Therefore, if one house appreciates in value, then the surrounding properties also increase in worth.  An investor can force appreciation by investing in repairs or improvements.

A somewhat lesser known reason that so many people are learning how to become a real estate investor is the beneficial tax rules governing such transactions.  State and federal governments try to encourage investment by writing financial rewards into the tax code.  There are two main rewards built in.  First, an investor can claim monthly mortgage payments as a tax deduction.  Secondly, tax deductions can be made through a process called depreciation.  Though a property may appreciate in value, an investor is allowed to make the assumption that it will actually depreciate over the projected useful lifespan of the unit.  He or she is then allowed to claim this theoretical loss as a tax deduction.

Another strong reason for becoming an investor is called leverage.  Leverage can best be explained through an example.  Say you bought a house for ten thousand dollars and then sold it for eleven thousand dollars.  Your profit margin would be ten percent.  However, if you get an initial loan for the purchase and make a down payment of only one thousand dollars, then your profit margin would be one hundred percent.  This method is called leverage and is a great way to maximize profits.

For all these reasons real estate investing is both an easy and very profitable business to get into.