An investment is an expenditure of money in exchange for income or profit. A myriad of investment types exists. Some investments produce guaranteed income while others fluctuate with market conditions. Real estate – land and anything permanently attached to it–is something we’ve all had experience with. Everyone needs a place to live, work, and play. The land in which we do these things is a limited commodity. Common economic theory supports the idea that as demand increases for a commodity with limited supply the value will increase.
If you were trying to buy or sell a home, land, or rental property in Helena, Bozeman, or Missoula in the past couple of years you probably had firsthand experience with this concept. In recent years some neighborhoods in Helena have seen appreciation of 8 to 10 percent per year. In some cases Missoula and Bozeman have seen much greater appreciation of values. Water-front, recreational, and view properties throughout Montana have increased in value as the demand has increased. And, with the high-tech securities sector slowing down from the high-flying 1990s, the long-term outlook for investment properties is strong demand.
An owner of real estate can directly influence how their investment performs, by adding sweat equity to the property by investing personal time in the upkeep and management of a property. General remodeling tasks, minor interior and exterior maintenance, general accounting and other related chores often can be completed by the investor. This helps reduce overhead costs while letting the investor be more of a “hands-on” property owner.
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Buying and owning real estate is different than many other types of investments. It is important to know your investment objectives, the distinctions of the various types of investments and how they work.
Speculative investments that have future profit potential depend on appreciation of value between the time the investment was purchased and sold. Examples include artwork, collectables and antiques. In real estate we think of these as “non-income” producing properties such as our homes and raw land. Speculation is risky and difficult to predict.
Income produced by investments can be from interest, dividends, or rents. Income properties with predictable revenue streams and expenses allow detailed analysis of the cash flow in their evaluation.
Income-producing real estate offers a wide range of alternatives, from single-family residential rentals and small multi-family apartment buildings to strip malls and shopping centers to self-storage warehouses. There’s a tremendous range of commercial properties available for the real estate investor to consider. Each type of property presents its own potential for returns, management responsibilities and, of course, levels of risk. However, a property that is well-managed and properly financed.
Commercial real estate, like any long-term investment, presents great opportunity and inherent risks. A commercial real estate specialist experienced in valuation, cash-flow analysis, brokerage, lease work, asset management, and other related areas can prove to be invaluable. Also, find an experienced tax advisor who can help you understand the tax advantages of owning real estate.
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There’s plenty of capital available in the marketplace right now, and opportunities are available in the commercial sector for investors willing to take some risks. Like any investment venture, real estate may not always perform up to short-term expectations. However, a well-managed and properly financed piece of commercial property unquestionably can prove to be a solid investment that can yield significant returns over the long term.