Benefits of Owning Commercial Real Estate

Kiah Surgue

As a business owner, you should be aware of the many advantages to owning the commercial real estate where your business is located.  In order to pursue owning, you have to have a solid financial profile and a clear vision for growth.  Investors are more apt to lend to businesses with value and assets, combined with a low amount of debt compared to owner’s equity.  This is important to ownership and access to capital.  Ultimately this type of business investment can serve as a stable foundation for future commercial success. 

    The interest savings on purchasing versus leasing commercial real estate is huge.  When carrying a mortgage on the property, a portion of each monthly payment goes to principal and a portion goes to interest.  A business owner can use the interest portion as a tax deduction.  So, a property valued at $500,000 with 20 percent down, a 20-year term and an interest rate of 4.5 percent has total payments of $607,000 over the course of 20 years, of which $207,000 goes directly to interest.  Thus, a third of the total payments can be deducted over the term, a major tax bonus.

    Property tax write-offs are another advantage to owning commercial real estate.  When you own property, you are responsible for village, county and school taxes which are deductible expenses that can offset business income and business tax liability.  

    Additionally, depreciation on commercial real estate is a benefit come tax time.  All assets but the land will depreciate in value as soon as they are purchased, including the roof, siding, furnace, sinks, toilets, decking etc.  The IRS allows the depreciation of a residential rental unit over 27.5 years and a commercial building over 39 years.  For example, if you purchase a residential rental for $1 million, the annual depreciation that can be written off is about $36,000. 

    Many other tax deductions are available when owning a business.  Any maintenance or renovations done to the property are deductible, as well as purchases of equipment, furniture, fixtures, and inventory and working capital for common area maintenance charges, insurance, phone, electric, internet, office and supply expenses.

    Some investors purchase commercial real estate as a long term retirement investment to generate a valued asset, knowing that the capital gains tax rate on the sale of a building will generally be lower than the personal tax deduction associated with a traditional IRA.  This is another reason that owning commercial real estate can be favorable.

    Looking way ahead, if you plan to leave the property to a beneficiary such as a spouse, family member, partner etc. and they decide to sell the property, they will only pay taxes on the increased value from the time of the owner’s passing.  This is referred to as a post-sales tax savings and is another benefit to ownership. For example, a business owner purchases a commercial property for $1 million and it appreciates to $4 million over time.  Then the owner passes, the property goes to the beneficiary and the beneficiary sells the property for $5 million; the beneficiary only owes taxes on $1 million. What a tax savings!

    The benefits to owning your commercial property may outweigh leasing or renting a space.  If you have a business that is in a solid financial position, consult with your team of experts such as your business advisor, attorney, accountant and banker to see what your next move should be. 

                The New York State Small Business Development Center at JCC offers free, individual, confidential counseling to new or existing business owners in Jefferson and Lewis counties.  They also offer an entrepreneurial training course with presentations by area professionals in law, marketing, accounting, etc.  For more information, contact 315-782-9262, sbdc@sunyjefferson.edu. St. Lawrence County residents can contact their SBDC at SUNY Canton, 315-386-7312, sbdc@canton.edu. 

Jefferson, St. Lawrence median home prices up last quarter, but sales figures down in Lewis County

STEPHEN SWOFFORD n WATERTOWN DAILY TIMES The house at 215 Butterfield Avenue sold above median price for the area. Incentives driven by economic development and home buyers purchasing more expensive homes increased the number of homes sold in Jefferson County and the median price in both Jefferson and St. Lawrence County last quarter.(Wolf story)

STEPHEN SWOFFORD n WATERTOWN DAILY TIMES
The house at 215 Butterfield Avenue sold above median price for the area. Incentives driven by economic development and home buyers purchasing more expensive homes increased the number of homes sold in Jefferson County and the median price in both Jefferson and St. Lawrence County last quarter.(Wolf story)

By MARCUS WOLF
MWOLF@WDT.NET

Incentives driven by economic development and home buyers purchasing more expensive homes increased the number of homes sold in Jefferson County and the median price in both Jefferson and St. Lawrence counties in the third quarter of the year, but a loss of employment opportunities in Lewis County decreased the median price and kept the number of houses sold relatively flat.

The number of houses sold in Jefferson County increased last quarter by 80 units, or 33 percent, from 246 to 326, according to the Jefferson-Lewis Board of Realtors. The median home price in Jefferson County also increased by $2,875, or 1.9 percent, from $148,625 to $151,500, and the median number of days on the market for a house increased by 30 days, or 49.2 percent, from 61 to 91.

Randy T. Raso, president of the Jefferson-Lewis Board of Realtors, said the proposed missile defense site at Fort Drum encouraged more prospective home buyers to purchase homes in the area, driving up home sales last quarter.

“A lot of folks hear things like that and their first thought is, ‘Should I invest in this area?’” Mr. Raso said. “I have worked with people overseas … who are interested in investing in the area.”

Foreclosed properties that investors purchased earlier this year were put back on the market and sold at higher prices, Mr. Raso said, raising both the number of units sold and the median price. For instance, a developer would renovate a house valued at $100,000 at the time of purchase and resell it for $30,000 to $40,000 more.

“They are buying them up as a deal and are fixing them to make more of a profit,” he said. “So that raised the median price. Not only does that help the city and the area, but it also increases the value of the home.”

Lance M. Evans, executive officer of both the Jefferson-Lewis and St. Lawrence boards, said that brokers sold more single-family, year-around homes at higher prices and waterfront summer cottages last quarter. For example, one Realtor, Mr. Evans said, sold a $999,999 cottage in Henderson.

“The bottom line is that in the north country real estate market … homes are still priced nicely and interest rates are still low,” he said.

STEPHEN SWOFFORD n WATERTOWN DAILY TIMES The house at 1028 Holcomb Street sold above median price for the area. Incentives driven by economic development and home buyers purchasing more expensive homes increased the number of homes sold in Jefferson County and the median price in both Jefferson and St. Lawrence County last quarter.(Wolf story)

STEPHEN SWOFFORD n WATERTOWN DAILY TIMES
The house at 1028 Holcomb Street sold above median price for the area. Incentives driven by economic development and home buyers purchasing more expensive homes increased the number of homes sold in Jefferson County and the median price in both Jefferson and St. Lawrence County last quarter.(Wolf story)

Compared with 2015, home sales from January to September this year increased in Jefferson County by 96 units, or 15.7 percent, from 611 to 707. The median price for homes for the nine-month period in Jefferson County, however, decreased by $27,700, or 18 percent, from $154,000 to $126,300. The median number of days on the market is also up from 2015 by 16 days, or 21 percent, from 77 to 93.

Mr. Raso said investors were less likely to purchase properties in the city of Watertown while the City Council discussed Councilman Stephen A. Jennings’s proposed rental registration and inspection law. Under its initial version proposed in August, the law would have required landlords, including ones who operated outside of Jefferson County, to register all of their properties with the city and have them inspected once every three years.

“Investors felt like they were being penalized for a few people who did not take care of their properties in the area,” Mr. Raso said. “It put a lot of folks on hold.”

In St. Lawrence County, the number of units sold last quarter decreased from the same time in 2015 by 25 units, or 11.7 percent, from 214 to 189, according to the St. Lawrence County Board of Realtors. The median price, however, increased by $12,880, or 14.2 percent, from $91,000 to $103,880, and the median number of days on the market was down last quarter by six days, or 7 percent, from 88 to 82.

Debra J. Gilson, president of the St. Lawrence Board of Realtors and a broker for County Seat Realty, said that having a low inventory in areas such as Canton and Potsdam could have caused a decrease in sales, although some areas such as Massena still have an overabundance of units on the market. While the number of units sold was slightly down, Mrs. Gilson said, waterfront property purchases drove up the median price last quarter.

“And of course, interest rates are at an all-time low,” she said.

The number of units sold from January to September this year increased from 2015 in St. Lawrence County by 15 units, or 3.2 percent, from 466 to 481. The median price increased from the same period in 2015 by $1,750, or 2 percent, from $87,250 to $89,000, and the median number of days was up by five days, or 5 percent, from 99 to 104.

Lewis County home sales remained relatively flat last quarter compared with the third quarter in 2015, decreasing by only four units, or 6.3 percent, from 64 to 60, according to the Jefferson-Lewis County Board of Realtors. The median price also decreased in Lewis County by $22,750, or 16.5 percent, from $137,750 to $115,000, and the median number of days on the market dropped by 35 days, or 31.3 percent, from 112 to 77.

The number of units sold from January to September this year increased from 2015 in Lewis County by two units, or 1.3 percent, 143 to 145. The median price for 2016, however, decreased from 2015 by $14,500, or 12.2 percent, from $119,000 to $104,500, and the median number of days on the market dropped by 34 days, or 27 percent, from 128 to 94.

When Climax Packaging, Lowville, closed in April and laid off 157 workers, Mr. Raso said that slowed the economy and caused a drop in both sales and the median price last quarter. For this year, Mr. Raso said, an overall lack of employment opportunities in the county affected the median price and number of units sold.

Despite dip, commercial sales steady: Realtors say tapering off not a definitive trend

From January to July this year, only five units of commercial and industrial real estate have been sold in Jefferson County, compared to 11 units during the same period in 2012, but north country real estate agents say the commercial market has been relatively steady in recent years and that the apparent tapering off isn’t evidence of a definitive trend.

In Lewis County, only one unit of commercial property has been sold in the same period of 2013, compared to three over that period in 2012. In St. Lawrence County, however, nine units have been sold in that period of 2013, compared to seven in 2012.

St. Lawrence County is also the only of the three counties to see the average price of commercial real estate increase over the six-month period, from $133,814 in 2012 to $159,055, with the range increasing from $15,000 to $400,000 in 2012 to $24,500 to $780,000 in 2013. In Jefferson County, the range over the six-month period shrunk from $20,500 to $730,000 in 2012 to $65,000 to $335,000 in 2013. [Read more…]