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A commercial mortgage involves any kind of real estate loan for an income-producing property that’s meant to be used for business purposes. Commercial mortgages can be used to purchase such buildings as hotels, office buildings, and shopping centers. If you require a commercial mortgage for a building that you wish to purchase or invest in, you should think about obtaining assistance from a commercial mortgage broker. These brokers are financial specialists who have the experience and training needed to provide investors and businesses with assistance in securing a standard commercial mortgage loan. Commercial mortgage brokers also provide investors and businesses with advice on which options are right for them, which allows them to make the right decision for their company or investment portfolio.

Mortgage brokers have comprehensive knowledge of the mortgage process, which means that they can help you find the best interest rates and loan terms. Their expertise gives them the ability to understand all of the financial options available to investors and businesses that are looking for a commercial property. The connections that mortgage brokers build should allow for a smooth loan application process. The following provides an in-depth look at why it’s important for investors and businesses to retain the services of a commercial mortgage broker.

Benefits of a Commercial Mortgage for Your Business

When you’re getting ready to expand your business, there are many benefits that can be derived from obtaining a commercial mortgage as opposed to renting office space. For one, purchasing a building outright with the assistance of a commercial mortgage can often times be cheaper than renting. While the upfront spending for the building can be very high with a possible down payment of 10-40 percent, you should be able to save a significant amount of money over the duration of the loan.

When you purchase a property for your business, it’s also possible for you to make money depending on how much of the space you’re using. If you’re only expecting to use around 60 percent of the space in the building, you could rent out the other space to smaller businesses that need office space for their operations. This option isn’t available when you rent a building for your business. Your monthly rent payments would also likely be significantly higher than the monthly payments on your mortgage, which is why renting the property would be more expensive than purchasing it. Along with the standard rental payments, you would likely be tasked with paying for utilities, maintenance costs, insurance, and property taxes.

Another key benefit of obtaining a commercial mortgage is that this type of mortgage assists with the future financing of your company. In the event that the property goes up in price, your business capital will increase as well. As the equity of the building increases, you will be able to use the equity to provide further funding for any growth or expansion that you believe your company is ready for. Keep in mind that the rate of appreciation will vary depending on such factors like interest rates, local supply, inflation rates, and demand conditions. Purchasing a property also comes with substantial tax breaks in the form of deductions for depreciation, expenses that aren’t related to the mortgage, and interest.

More Reasons to Take Out a Commercial Mortgage

Two women sitting at table with documents

There are additional reasons that you might want to take out a commercial mortgage, the primary of which is that it will provide you with the ability to secure land-development ventures as an investor. If you believe that you’ve found a location that would be ideal for land development and would provide high returns, you might want to take out a commercial mortgage to help you pay for the purchase of the land and eventual development of property on that land.

This type of mortgage will also provide you with the ability to add to your buy-to-let portfolio. When you invest in a buy-to-let mortgage, you will be purchasing the property as a building that you will rent out in order to obtain returns on your investment. If you’re not purchasing the property with the intent to live in it, you won’t be able to use a standard mortgage to purchase the property. Keep in mind that most lenders of these mortgages will require a down payment of 20-40 percent, which should help you get a low-interest rate of 2-5 percent.

There are many benefits that come with adding a buy-to-let property to your portfolio. For instance, this type of investment is designed to be used as a long-term investment that will have consistent growth. While real estate prices can fluctuate somewhat, they have been stable over the past decade, which means that the value of your property should continue to grow as you own it. When you rent out a property, you will be able to generate income from your tenants, which should help you make your mortgage payments while also increasing the returns on your investment. Profits can be increased further if you can obtain a low-interest rate on the mortgage. While investing in a buy-to-let property isn’t automatically a perfect investment that will net you a high return, it’s a relatively low-risk investment that will allow you to diversify your portfolio without increasing the risk by a substantial amount.

What Makes a Good Commercial Mortgage Broker?

Once you’ve made the decision to obtain a commercial mortgage for your business or as an investment opportunity, it’s highly recommended that you find a good commercial mortgage broker who will be able to guide you through the process and help you find the ideal mortgage. A good mortgage broker will have great connections and a vast network that they can tap into when helping a client. It’s important to understand that a mortgage broker represents your interests rather than the interests of a lending institution, which means that they will do everything they can to find the best deals for you in a commercial mortgage.

Because of the connections that a good mortgage broker has, the one you choose should be able to provide you with the greatest value in terms of interest rate, repayment amounts, and loan products. In order to maximize your investment or make low monthly payments on the mortgage, it’s important that you find the lowest interest rates that are available. Since mortgage brokers aren’t loyal to a single lending institution, they can look across the entire industry and numerous lenders in order to find the lowest rates.

When you go to meet a mortgage broker who you feel will provide you with exemplary service, it’s recommended that you attend this meeting with a high credit score, which will also help you obtain a low-interest rate when it comes to the commercial mortgage. If your credit score is hovering in the low 600’s or even lower, you will likely need to increase it if you want your application for a commercial mortgage to be improved.

There are several ways that you can effectively improve your credit score. For one, make sure that you start paying all of your bills on time. Once you do, your score should start to increase little by little. Missed payments can lower a person’s credit score significantly, which is why you’ll want to keep any late payments at a minimum. If you have any debts at the moment, you can also work to pay these debts off over time, which will help you increase your current score. Low utilization on your credit card can also keep your credit score high. If your credit card utilization is below 30 percent, your credit score should increase with each passing month.

*Disclaimer: The statements and opinions expressed in this article are solely those of AB Capital. AB Capital makes no representations, warranties or guaranties as to the accuracy or completeness of any information contained in this article. AB Capital is licensed by the Financial Division of the California Department of Business Oversight as a California finance lender and broker (DBO Lic. No. 60DBO-69427). AB Capital makes money from providing bridge loans. Nothing stated in this article should be interpreted, construed or used as legal, financial, investment or tax planning advice, or a substitute for thorough due diligence and the exercise of sound independent judgment. If you are considering obtaining a bridge loan, it is recommended that you consult with persons that you trust including but not limited to real estate brokers, attorneys, accountants or financial advisors.

Opportunity zones are communities wherein new investments can take advantage of certain tax benefits. Opportunity zones were created in 2017 when the Tax Cuts and Jobs Act was officially passed. This legislation lessened income tax rates for the majority of tax brackets while also providing corporations with larger tax breaks. It was in this piece of legislation that “Qualified Opportunity Zones” came to be.

These zones are meant to facilitate job creation and economic development in certain communities. These communities can be situated in the U.S. or any of its territories. Any investors who place capital within opportunity zones are provided with extensive tax benefits. If you’re looking for the right investment opportunity to add to your portfolio, you might want to consider opportunity zone investments, which will be discussed further in the following article.

What Qualifies as an Opportunity Zone?

Before you get started with investing in opportunity zones, it’s important to understand what qualifies as an opportunity zone. Since these zones are meant to assist with the growth of areas that have generally been economically depressed, there are some restrictions on which tracts of land are able to qualify for designation. For one, the areas will need to qualify as being low-income areas, which requires a poverty rate that’s at least 20 percent or a median family income that doesn’t exceed over 80 percent of the average family income in metropolitan or non-metropolitan areas throughout the state.

For the census tracts that qualify as low-income areas, as much as 25 percent of these tracts can be nominated for the possibility of being designated as opportunity zones by the U.S. Treasury. When looking at the neighborhoods that would qualify as low-income areas, over 55 percent of all neighborhoods in the country were at least considered to be designated as opportunity zones. From all of the neighborhoods and tracts that the U.S. Treasury considered for opportunity zones, around 8,700 were certified as qualified opportunity zones. Once you’ve found the area that you’re interested in investing in, it’s important to know about the tax incentives that will be available to you.

How to Invest in Opportunity Zones

Investing in opportunity zones is relatively straightforward if you make the right investment decisions. It’s possible to invest in these zones by placing your capital into opportunity zone funds, which will act as a vehicle that will allow you to invest capital gains into various opportunity zones. When you invest capital gains into these funds, you’ll be able to defer tax payments until 2027 or until the asset is sold, which can save you a significant sum of money in the meantime.

When you defer tax payments on capital gains, you can invest more of your capital gain for at least a few more years, which can help you increase your earning potential in a manner that wouldn’t be possible if you were required to pay taxes on your capital gains when they were first realized. Along with getting more out of your investments, deferring tax payments gives you the opportunity to invest in opportunity zone funds with this money for at least five years.

What Other Tax Incentives Do Opportunity Zones Offer?

Tax liability refers to the amount of tax debt that a corporation, individual, or other entity owes to the IRS. If you invest in opportunity zones, you may be able to decrease your overall tax liability, which means that you won’t need to pay as much on your yearly taxes. In the event that you hold an opportunity zone fund for at least five years before the December 31, 2026 deadline, you will receive a reduction in your tax liability of 10 percent. Overall, it’s possible to receive a tax liability reduction on capital gains of up to 15 percent. Keep in mind that you will need to invest in an opportunity zone fund by December 31, 2021 if you want to take full advantage of the tax benefits available to you.

If you want to protect your capital gains on a long-term basis, investing in opportunity zone funds is a good avenue to explore. The tax liability that comes with capital gains can actually be wholly eliminated if you hold your opportunity fund investments for ten years or more. Any appreciation that you earn from this investment will have zero capital gains liability to it. When looking through a historical lens, real estate typically appreciates over a long period of time, which means that it’s likely the investment you make will increase in value as you hold it.

Five Notable Opportunity Zones in the US

The following are five of the more notable opportunity zones that are considered to be primed and ready for almost instantaneous growth.

Oakland, California

Oakland is situated near San Francisco and provides commercial and residential real estate developers with some fantastic opportunities for investment. There are already many large technology companies that are based out of Oakland, which include Pandora, VSCO, and Gravitational, the latter of which is a cloud-data service provider. There are also a variety of BART stations situated throughout Oakland that allow for far more convenient commuting in the Bay area. The presence of these stations in Oakland provides residents of the city with more job opportunities as well as easier mobility around the area. Over the past five years, the increase in home values is 48 percent, which is almost double than the rate of previous years.

Seattle, Washington

Seattle is currently in critical need of new investments in commercial and residential properties, which is due mainly to the lack of development when compared to the substantial population growth throughout the city. The opportunity zone for this area is located in South Seattle and is large and contiguous, which means that urban development is possible alongside residential developments.

While you may want to invest in the development of apartment buildings, you should also consider investing in improved transit systems, which could allow for high returns. Condos are also in high demand throughout South Seattle. In the city, the increase of home values over the past five years was 46 percent.

San Jose, California

San Jose is a city in the Bay area that’s experiencing rapid business and housing growth since many of the regions that are slightly north of San Jose, like Palo Alto, San Francisco, and Mountain View, have become increasingly expensive in recent years. In fact, the average price for a San Francisco home in 2000 was around $420,000. As of January 2019, home values in San Francisco skyrocketed by over 300 percent to $1.38 million. At the moment, these areas may not be ideal for investment when compared to San Jose.

Downtown San Jose is home to offices for large companies like Adobe as well as a new Google campus. While this campus is still in development, investors can expect the construction of the campus to create high demand for housing and walkable businesses that are able to support the large number of employees that will be needed by these companies. Throughout the past five years, home values have increased in San Jose by around 39 percent.

Los Angeles, California

While many areas of Los Angeles are teeming with investment opportunities, the possibility of opportunity zone investments is mainly available in Downtown Los Angeles. This particular area experienced a boom in hotels and residential apartments back in 2018. Two of the more recognizable companies that are based out of Downtown LA include Soylent and Spotify, both of which are more popular than ever.

When looking specifically at South Los Angeles, many of the neighborhoods in the area are developing at the moment, which is ideal since these neighborhoods are situated nearby the 10 Freeway and allow for convenient mobility around the city. Los Angeles is also busy working on the creation of additional E Line stations all over the city, which is going to benefit mobility even more. Home values across Los Angeles have increased by around 36 percent over the past five years.

San Diego California

San Diego is yet another city in California that’s becoming increasingly expensive. While San Diego has usually been highly resistant to new developments, the presence of opportunity zones should give you the incentive to consider investing your money into a development project regardless. South Park, Barrio Logan, and Golden Hill are three areas in San Diego that are considered to be opportunity zones. When looking at the increase of home values over the past five years, San Diego has seen an increase of 30 percent. These trends are lasting ones that have yet to display any signs of slowing down.

Do You Want to Diversify Your Portfolio With Opportunity Zone Investing?

If you’re looking to diversify your portfolio with opportunity zone investing, it’s easy to get started with this type of investment. Your main goal should be to invest a realized capital gain into an opportunity zone fund within a period of 180 days after realization has occurred.

Benefits of a Commercial Mortgage Broker

Tag: Investments