[:he] The low interest rate and the search for financial instruments yielding high returns, led to a drastic increase in real estate investments, also in the private sector. The search for viable investments has expanded the canvas to commercial real estate as well, and we see more and more investors who are considering investing in profitable commercial real estate. However, since the commercial real estate market is more complex than the residential real estate market, the feasibility of investing in yielding properties must be carefully examined according to additional criteria, not just yield.
What is a yielding asset
A yielding asset is an asset that generates a yield/income for its owner, meaning it is not intended for use by the owner of the asset, but is leased to another for rent. The term yielding property refers to all rented properties, with the exception of residential apartments. A yielding property can be an industrial building, warehouse, offices, shops and more.
The trends in housing prices do not correspond to the trends in business real estate prices
Business and private entities that are considering investing in profitable properties may be influenced by the perception that real estate prices are on a constant upward trend. First, what was in the past is not indicative of the future , and when investing in real estate one must take into account that prices can also fall. And secondly, when it comes to commercial real estate, a deep knowledge is required not only of the general state of the economy, but also of the specific industry in which we are considering investing. In addition to this, investing in commercial real estate involves in taxation other than a residential apartment and will force the investor to deal directly with the tax authorities as a business entity for everything.
Bank financing instead of a mortgage
In most cases, an investment in a business-yielding property will be done with bank financing, the bank financing takes into account the future return on the property, but a factor This may change over time as a property that is rented out today and yields a certain yield, may stand empty in the future or yield a lower yield over time. In terms of taxation, business properties, unlike residential investment apartments, are obliged to report to VAT. Non-business entities that decide to invest in a yielding asset should take this into account.
The business environment of your investment
When investing in commercial real estate, you must understand that the business environment in the specific industry has a considerable influence on real estate prices, rents, rental conditions, and more. The yielding asset will be affected by changes in the industry: if it runs into difficulties, goes through a period of mergers and acquisitions, technological changes, the opening of a new industrial area, etc. Changes in the business environment can lead to your tenants not being able to pay the rent and difficulty finding a new tenant after a lease ends. A thorough understanding of the business environment in the industry in which you have decided to invest is critical in order to minimize the risks and take advantage of the full possibilities of the investment.
The first step towards a smart decision
Investing in a yielding property is a complicated matter and is not recommended for those who do not know the area well or are willing to use an expert. Professional advice and support will help you understand the risks, find the right opportunities and make the best use of them. The Yair Levy Real Estate Strategy Company will be happy to be at their disposal and we invite you to contact us to receive information relevant to your needs.[:]
