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High Tides in Commercial Real Estate

Sep 02, 2015

 

Top Reasons Why You Should Sell Your Property Today

Commercial BuildingThere is lots of chatter explaining why you should invest in commercial real estate. However, there are more opportunities in today's market to make a real profit when you sell. Here are the top reasons why you should sell your commercial real estate property today, while the market is hot.

The nation is in massive debt:
The current federal debt is over 18 trillion dollars. By the end of the year the estimated deficit will be over 22 trillion with the expectation that it will continue to climb.

California is also deep in debt:
The State of California has proudly balanced its budget, but we still have over $430 billion in debt and continues to increase. Local districts in our state have close to $424 billion in total debt.

Our tax infrastructure is at stake:
From a republican perspective, we could cut the size of the government to help create economic stimulus. From a democratic perspective, we could increase taxes to promote economic growth through government spending. The bottom line is that both directions will not provide any real solutions anytime soon. Therefore, we should prepare for actions taken against parts of our tax structure.

To many, commercial real estate means Wall Street, in other words "rich people." But who else should pay the burden of our debt than a commercial building? It does not have an impact on the "average citizen." All of which can certainly be debated, but whatever side you are on, it's easy to admit that commercial real estate would be an easy target.

The majority of California properties may lose tax protection:
In the state of California, there is a lot of talk about eliminating all or part of Proposition 13's protection on commercial real estate. On the federal level, there are actions taking place to adjust or eliminate interest rate deductions, or alternatively adjust depreciation schedules on commercial properties in order to eliminate the 1031 tax protection. This would limit protection on properties valued under $1,000,000.

Unfortunately, if you are a commercial property owner, both parties for different reasons are in favor of these adjustments. A number of republican presidential candidates are talking about implementing a flat tax, with no deductions or exemptions allowed. With a republican majority expected in congress, a new republican president might just be able to pass such a flat tax. This flat tax would certainly eliminate a 1031 exchange. If the democrats were to win the presidential election, even with a Republican congress, they would be in favor of accelerating tax gains by getting rid of the 1031 exchanges.

Supplemental taxes may be applied:
Although this hasn't been discussed, supplemental taxes certainly need to be considered. Additional property taxes or supplemental taxes would be used to pay for roads, public transportation, public housing, and commercial real estate.

When the market crashes, you will be safe:
In a downturn, who wins? Those who have liquidity. If you have cash in a down market, then you can still make a lot of money. Cash sitting in the walls of your property is not liquidity. In a down market, pulling cash out of your property is very challenging. It's better to sell your assets today in a high market and simply pay the tax if you cannot find a trade.

If the market turns and you hypothetically lose about 10 percent in rental value, that value loss could mean far more loss in asset value than what your property tax would have been if you sold. However, having liquidity could make you a kingpin in the next down cycle because you can go back and use your cash to purchase new property.

All of these reasons lead me to why it's prime time to sell your commercial real estate property so you can enjoy the best cash flow we have seen in years. Sell now, and you will be seeing double-digit growth in your assets. Rent also continues to rise in the Bay Area, giving even more reasons to sell. The problem is that we are heading for another downtown it will happen and most likely very soon.

Remember, the rule of thumb is to buy low and sell high. How many of us believe that our current high is only going to get higher? History repeats itself and the market always goes in a cycle. A new cycle is just around the corner.

Photo Credit: /\/\ichael Patric|{ via Compfight cc

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Written by: Hans Hansson

E-mail: hans@starboardnet.com


Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 30 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email hans@starboardnet.com or call him at (415) 765-6897. You may also check out his website, www.commercialspacefinder.com.

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