Leaving A Legacy With Commercial Real Estate

Watching my two children open the many gifts they were blessed with from friends, family and their parents, over the holidays raised a question for me. What can I give my children that they can enjoy when I’m no longer around? What can I give them that they can share with their Children’s, Children’s Children? The answer for me is Commercial or Income Producing Property. Namely small to mid-sized Commercial Real Estate. By small to mid-sized I mean assets whose value is in excess of $1 Million. I understand that Commercial assets is not as exciting to my children as the new leap pad games they received for Christmas but it’s certainly the gift that will keep giving. In this article to we will explore three advantages to building a legacy with Commercial Property.

Income producing Real Estate in general is a great long term investment because of the high demand. As an investor in Apartment Buildings, I need only point to the basic needs of life, food, shelter and clothing, to justify that there will always be a need for shelter. Of those three needs, the need for shelter is, in my opinion, most important to the average individual. The Bureau of Labor Statistics, 2011 Consumer Expenditures News Release reports that the average American spends 26% of their income, before taxes, on housing. As we examine our own economic spend plan housing is undoubtedly the largest bill for most of us. This further supports the claim that real estate is in large demand.

Next, Income producing assets are great long term investment because of the principal of leverage. One of my mentors used to say “You make money in real estate when you buy not when you sell… you must Buy Right!” Quoting him here is not as impressive without the Southern accent over the word ‘Right.’ What he meant is that buying a property must be done strategically with the goal of making money in the forefront. You must be able to leverage the money you use in a deal. Leverage occurs when money is borrowed at a certain interest rate that is less than the rate of return of the property. Leverage enables a commercial asset to pay for itself. What better asset to have than an asset that not only produces income but produces income in excess of its expense. Leaving such an asset for the generations that follow you is powerful.

Lastly, Commercial Property, namely property whose value is in excess of $1 Million, can more often than not support itself. The income produced from the monthly rents can be used to pay the mortgage and hire a staff of professionals to maintain the asset. Of course you can do everything yourself (Not Recommended) but if the property makes enough income to hire a professional lawyer, accountant, landscaper, property manager etc. why wouldn’t you? More importantly, if your Children or your Children’s Children are passionate about something else and don’t want to be full time real estate investors they can hire professionals to manage the asset that funds your legacy.