You might be surprised to know how many commercial real estate purchases are driven more by emotional than rational decision making. With the real estate and stock markets being white-hot and returns on conservative alternatives near zero, it is tempting and easy to throw caution to the wind. Beware if you dare. If you’re considering a real estate investment in 2015, here are Six Wealth-Building Real Estate Resolutions to ensure that rational thinking prevails.
1. Neighborhood trends matter.
Google earth doesn’t tell the entire story. A site visit is worth the time and expense. Also, engage a professional familiar with the property type and local market to provide an objective assessment that will reveal opportunities and potential problems associated with planned rezoning, future developments, transportation changes, or market trends.
2. Physical condition of property
Get an inspection! Hidden conditions can be very costly. A pound of prevention…well, you know.
3. Time horizon
Illiquidity of real estate warrants special consideration as part of an overall wealth-building strategy. Think hard about your long-term plan for the property and how it fits with your financial resources and overall financial goals. Real estate generally should not be acquired as a short-term investment.
4. Is the property management intensive?
Like kids and puppies, real estate ownership can be a lot of work. Do you and your partners fully understand the financial risk and time commitment involved in owning, maintaining and marketing (in the event that leases expire) a property?
5. Ownership succession planning
Whether you’re an individual buyer or you have partners, a succession plan is critical. In the case of multiple owners, harmonized succession planning is extremely important and should be addressed in partnership agreements.
Consult with a tax attorney or CPA familiar with real estate investment to find out the tax responsibilities, risks and rewards of owning the property. How does this investment fit into you overall personal tax strategy? The benefits aren’t what they used to be.