Owner-occupied properties are very attractive to commercial real estate investors because of the many benefits they offer. From lower management costs to tax write-offs and more, owner-occupied properties give investors more control and generate great revenue. Some people start out by converting a basement or detached building into an apartment, and when they see the revenue, they catch a fever that leads them to start building a property portfolio. Soon, revenue from rent no longer supplements their income because the units are providing more revenue than their regular jobs ever did.
Higher Tenant Quality
Owner-occupied properties attract a better grade of tenants for a couple of reasons. First, knowing that the property owner lives on the premises reduces the loud music and untidiness. Second, an owner-occupied property gives commercial real estate investors the ability to screen potential tenants directly.
The Mortgage Is Paid Every Month
A multi-unit owner-occupied property can generate enough revenue to pay the monthly mortgage installments and still have money left over for a healthy income. While the standard rule is that more units equals more revenue, and upscale owner-occupied property with one or two rental units can generate enough money for commercial real estate investors to pay off a mortgage early and reinvest revenue in new properties.
Tax Deductions on Operating Expenses
The IRS offers a number of tax deductions for owner-occupied properties, and the deductions for operating expenses rank near the top of the list. If the property owner pays the utilities for all of the units on the property, they will be able to deduct that total minus the usage for their own space. Similarly, if something needs to be repaired or replaced in one of the rented units, the owner can deduct the entire cost.
An Alternative Strategy for Property Flippers
Sometimes known as “fix and hold,” commercial real estate investors will sometimes turn duplexes or properties with detached housing into rentals if the selling market is not quite where it should be. By turning the real estate into an owner-occupied property, a commercial real estate investor will get all of the benefits, with the option to turn around and sell the property if prices in the neighborhood start to rise.
Low Property Management Costs
With an owner-occupied property, investors do not have to deal with the expense of hiring a property management company. Because the owner takes care of maintenance, tenant screening, and other tasks associated with property management, investors can save thousands of dollars a year.
One of the other great IRS tax deductions associated with owner-occupied properties is depreciation. Form 4562 allows commercial real estate investors to claim depreciation deductions based on the percentage of the building that is being rented out to tenants. Depreciation rates are subject to change, so consult with your accountant or tax preparation service to ensure you are claiming the right amount.
Financing for Owner Occupied Properties
Whether you are purchasing an owner-occupied property or converting an existing property in your portfolio into an owner-occupied rental, you need a financing strategy tailored to your needs. At Web Finance Direct, we offer SBA loans, stated income financing, and many other commercial real estate solutions to help you get the most out of your properties and start generating revenue faster. Contact Web Finance Direct today to get started.