Commercial Real Estate Investing Is Not For The Faint Of Heart
The COVID-19 pandemic made almost everyone rethink the nature of work and realize how fragile the routines around which we build our activities are. In no year besides 2020 did so many people express gratitude to delivery drivers or to supermarket employees who restock the shelves, and the list of occupations that could become obsolete in the near future became much longer; it is no longer just typewriter repair technicians who may need to find a more marketable skill. Real estate investing has always been a profession that has attracted people who like to strategize and who see romance and adventure in unexpected changes to the Internal Revenue Code. If flipping houses was your pandemic hobby and now you are thinking of branching out into commercial real estate investing, don’t be hubristic about how easy it will be, but do contact a real estate lawyer.
What Makes Commercial Real Estate Different from Residential Real Estate?
If you have ever bought a house, you know that real estate purchases involve laws, taxes, and insurable risks that you never think about except when you are buying and selling real estate. Multiply these by ten if you are dealing with commercial real estate. (It is noteworthy that a real estate property that includes five or more residential units is considered commercial real estate for legal purposes. Residential real estate means no bigger than a quadruplex.) Of course, buying a big building requires a lot of capital, so only big corporations can afford to buy big buildings. There are, however, opportunities for individuals and small companies to get involved, such as selling “parcels” of a big building (such as X number of stores in a mall) to different buyers or partial ownership of a commercial real estate property through blockchain real estate tokenization.
Likewise, the tax incentives for commercial real estate transactions are different. Section 1031 exchanges will be subject to new restrictions starting in 2022, but these are not the only way that investors can reduce their tax burden. Section 720 exchanges and Qualified opportunity Zones may be the best ways to reduce taxes on commercial real estate in the near future. The tax laws related to commercial real estate change frequently. Therefore, the tasks of a commercial real estate agent are more complex, which means that the licensing process is more rigorous; commercial real estate agents must have a bachelor’s degree in a finance-related field. Likewise, while it is a good idea to consult a lawyer about a residential real estate purchase, especially when you are buying the residential property as an investment, it is an absolute must for commercial real estate investing.
Let Us Help You Today
If the COVID-19 pandemic did not scare you out of investing in real estate, you are definitely ready to strategize with a Washington DC real estate lawyer about your next moves in the world of commercial real estate investing. Contact Tobin, O’Connor & Ewing for a consultation today.