Is Commercial Real Estate Still Profitable in Today’s Market – YES!

Daily Real Estate News  |  November 27, 2007Commercial Real Estate Still Profitable Investment
So far, the softening in the real estate market hasn’t been felt in commercial property. There appears to be only a slight decline in 2007 vs. 2006.

Apartments have benefited from the still-high home prices and tightened mortgage-lending standards, although the increases have slackened slightly from 5 percent to 4 percent. Office properties are up 1 percentage point to 10 percent. Shopping centers are down 0.5 percent. Warehouses are up 4 percent and still in demand.

Over the past 12 months commercial real estate has returned an average 13 percent (property appreciation plus rental income), says commercial brokerage house Marcus & Millichap. That tops the 8.4 percent total return from the S&P 500 and the approximately 3 percent return from single-family homes.

Forbes magazine suggests that anyone interested in becoming a commercial landlord should ask the following questions before deciding how to go about it:

  • Do you want to invest on your own or in a group?
  • How much work do you want to put into your property?
  • Is a 1031 exchange worthwhile, or will fees eat up the delayed tax benefits?
  • Would you make more money buying a publicly traded REIT?

Source: Forbes, Dorothy Pomerantz (12/10/07)

1031 Exchanges For Second And Vacation Homes, Eyed By IRS

This article came into focus through my email and the words that caught my eye were Vacation and Second Homes.  Maine is know as VactionLand and we have our share of out- of- state home owners. 1031 Exchanger’s please read on…

IRS Plans to Take Hard Look at 1031 Exchanges
The Internal Revenue Service is stepping up its oversight of 1031 like-kind exchanges after a report by the U.S. Department of Treasury Inspector General for Tax Administration pointed out that its use has doubled since 1998.

The IRS will be providing guidance on the issue of 1031 exchanges for second and vacation homes that aren’t used exclusively by the owner.

The report said some “may see this as an opportunity to invest in second and vacation homes at reasonable prices.” Given the lack of regulations, statutes and court cases in this area, taxpayers and promoters “may mistakenly take the position that any transaction not specifically prohibited by IRS guidance would be entitled” to like-kind exchange treatment, the report said. “Unscrupulous or uninformed promoters” already are taking advantage of the IRS’s “silence” on this subject. “For example, one promoter advised that taxpayers could sell their vacation homes using like-kind exchanges even though the homes were never rented.”

Bruce Friedland, an IRS spokesman, said the agency “urges taxpayers to keep documentation on hand to substantiate 1031 exchanges.” That documentation “is critical if the IRS has questions,” he said.

Source: The Wall Street Journal, Tom Herman (10/10/2007)