Why would and out of State Buyer invest in the Midwest?
Simply a higher return on invested dollars. While the coasts have much lower cap rates (higher acquisition cost) the midwest has just seemed to plow through with stable rents, lower costs and cap rates that have hovered from 8% to just under 10% as opposed to the coasts with sub 5% cap rates.
An investor that sells a cash flow asset in the nations top markets could reinvest with no capital gan and double his/her return, by redeploying in the midwest. Add an additional 4% to 5% cap rate to a 1031 exchange of commercial property.
The Midwest commercial real estate market has responded well to the economic recovery, and according to some benchmarks has outperformed the coastal port cities that have traditionally been the power house markets for the sector.
In the wake of the tax bill passed on December 22, the commercial real estate industry has come out ahead in terms of benefitting from new changes. The National Association of Realtors (NAR) cited sections dealing with like-kind exchanges, carried interest, cost recovery, qualified private activity bonds and the low-income housing tax credit as “major [victories] for real estate stakeholders.” While there are multiple possible benefits for commercial property owners and investors, the biggest gains will come from increased deductions for pass-through entities—to the tune of 20%. Because “real estate investment is almost always conducted through [partnerships and LLCs], it will be a sector to benefit richly after the late-stage inclusion of property investment under the provisions of the bill.” Similarly, investors stand to gain from 1031 exchanges. “The tax bill preserves the 1031 tax-deferred exchange rules that allow investors to defer capital gains on the sale of a property by reinvesting proceeds into another qualifying “like-kind” property. One key change in the new tax bill is that the 1031 exchange can only be used to defer capital gains on the value of real estate property and excludes any value on personal property.” Wondering if there’s a downside? Overall, industry leaders seem to agree that commercial real estate will benefit from ripple effects economic and employment growth that will drive demand for commercial properties.
Come to the MidWest and let Blue Rock Commercial Real Estate bring you a greater return on your real estate wealth.