INCO Blog

The 1031 Tax Exchange

2018-12-19T12:43:39-08:00September 30, 2016 @ 11:12 am|

What is a 1031 Tax Exchange?

As an investor, it’s important to stay sharp on the facts when considering any changes to your investment portfolio. One of the smartest moves you can make is to structure a 1031 Tax Exchange. In this article, INCO Commercial reviews the details of a 1031 Exchange and how it can benefit you.

The 1031 Tax Exchange, also known as a ‘Starker Exchange,’ allows an investor to sell a property and reinvest the proceeds in a new property. In doing so, all taxes on capital gains are deferred. The official wording states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

A delayed 1031 Tax Exchange occurs when the exchangor relinquishes his property before acquiring new property. The property the exchangor owns is first transferred, then the property the exchangor wishes to own is acquired second.

A successful exchange requires strict adherence to the guidelines outlined within the tax code.

There are four basic requirements when entering into a delayed exchange. It is crucial to review these under the counsel of a tax accountant or attorney to guarantee proper adherence to the tax code. INCO Commercial is ready to help you make arrangements and assist you each step of the way.

Property Qualifications

The internal revenue code requires that the properties involved in an exchange must be held for productive use in trade or business or for investment, and they must be “like-kind”.

Like-kind simply means that if two assets or properties are considered the same type, an exchange between them would be tax-free. However, the like-kind requirement is often a source of confusion for investors. All real estate is technically like-kind, with the exception of property outside the United States. For example, an investor selling a rental home in the U.S. can exchange into a multi-plex, provided that it is also located in the U.S. Similarly, an investor selling a warehouse can exchange into a percentage interest in an office building. However, the line is drawn with dealer properties, which are ineligible for a tax exchange.

A dealer property, or property held as inventory, is one purchased with the intent of “flipping,” or turning around quickly. While most real estate purchases are considered “investments,” the IRS makes the final determination whether the property is a longer-term investment or a dealer property.

The most important factor in determining whether a property is dealer property or not is “intent”. Upon an audit, the IRS will carefully examine what the investor intended to do with the property at the time of acquisition. This can include a review of the type of mortgage, what kinds of improvements were made, correspondence relating to the property, the type of insurance coverage, etc.  If the IRS determines that the intent of the investor was to quickly resell the property, it could be considered dealer property and thus ineligible for exchange.

Timeline

The IRS provides a maximum of 180 days to complete an exchange.  The timeline begins upon the close of escrow (COE) of the relinquished property. The replacement property (or properties) must be acquired on or before midnight of the 180th day; there are no exceptions. Additionally, the IRS requires that all potential replacement properties be identified by midnight of the 45th day.

If the replacement property/ies can not be acquired on or before day 180, the exchange is null and taxes must be paid.

Identification Rules

Identification of all potential replacement property is required on day 45 of the exchange.   Identification must be in writing and the description of the properties must be unambiguous.  The IRS provides two rules for identifying replacement property:

  • The 3 Property Rule – The 3 Property Rule allows for identification of any three properties of any price anywhere in the United States.
  • The 200% Rule – The 200% Rule is an option for identifying more than three properties.  With the 200% Rule, four or more properties can be identified, however the combined value of all properties identified can not exceed 200% of the property sold. For example:
    • Investor sells a rental home for $500,000. Investor can identify ten $100,000 rentals, five $200,000 rentals or any combination of properties, provided the aggregate value does not exceed $1,000,000.

Tax Deferral Requirements

To defer 100% of the capital gains tax liability, two requirements must be met:

  1. Reinvest all the cash generated from the sale of the relinquished property
  2. Purchase property equal or greater in value to the relinquished property.

The two requirements listed above can be accomplished in a variety of ways. For example, an investor selling a $500,000 rental, with $200,000 in equity, can purchase two $300,000 properties with a $100,000 down payment on each.

A partial exchange is also possible. This can occur in a trade down situation, where the replacement property is of less value than the relinquished property (i.e. sell for $500,000, buy for $400,000).  A partial exchange will result in a partial deferment of the tax liability.  Some, but not all of the taxes will be owed.

Property-related tax management can be a daunting task, especially with the strict code enforcement. Having a strong team with years of industry experience is not only crucial, but can relieve some of the stress on your end.

INCO Commercial is committed to ensuring our clients accomplish their objectives through our quality commercial real estate brokerage and advisory services. Explore our website, visit our contact page, you can reach out to Doug Shea at 562-773-4000 for immediate assistance.

 

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The National Appetite for NNN Leases

2018-12-19T12:43:39-08:00September 29, 2016 @ 10:02 am|

Since 2014, the popularity of the NNN lease has soared in the commercial real estate industry. Many investors see it as a safer investment, with a predictably stable source of income and offering more passivity with fewer responsibilities than other lease options. INCO Commercial reviews the features of a Triple Net lease as well as the benefits enjoyed by investors.

What is an NNN lease?

“Triple Net Lease” refers to the three net expenses of a lease: net property taxes, net insurance, and net maintenance (common area maintenance). In this lease arrangement, the tenant is responsible for these plus other operating expenses. Be aware, there is a caveat regarding triple net leases. Sometimes the term is misused or casually referenced and investors are led to believe that they have an almost entirely passive investment. For this we must distinguish between a ‘standard’ NNN lease and an Absolute NNN lease.

A ‘standard’ NNN lease stipulates that the tenant is responsible for the three net expenses, plus monthly rent; however, the landlord remains responsible for any building maintenance or repairs on the structure and roof.

In an Absolute NNN lease, the tenant is responsible for all of the operating expenses, plus any structural or roof repairs, in addition to the monthly rent. Since the landlord is not responsible for any of these operating expenses, an absolute NNN lease is considered a turnkey investment. Sometimes, it’s also referred to as a ‘bondable lease.’

Part of structuring the lease is negotiating what the tenant is responsible for as far as ‘operating costs’ and what the landlord will cover. These are referred to as pass-throughs and exclusions. Pass-throughs are operational costs that the landlord requires the tenant to cover. Exclusions are expenses for which the tenant is not responsible.

Even if your lease is structured as an absolute NNN lease, as an investor,  you are never 100% free from all costs. For example, there will be regular accounting costs and possible attorneys’ fees if any legal documents ever need to be drawn up.

The cap rate for these leases is determined by the credit rating of the tenant. Additionally, NNN require investors to have a net worth of $1 million, not including the value of their primary residence. Smaller investors who don’t fit this criteria can invest in a NNN lease property by investing in a Real Estate Investment Trust (REIT).

INCO Commercial works on a client-by-client basis, and will review your individual circumstances as an investor to guide you in the right direction and maximize your bottom line.

Benefits to a NNN Lease

The NNN Lease is highly attractive to investors as it affords security, a stable income, and it minimizes the overall cost for the landlord. Tenants are responsible for most of the operating expenses, and investors can be involved in as much or as little of the day-to-day as they want.

Tenants are also attracted to NNN leases since the monthly rent is usually much less than a gross lease because they will be financially responsible for most aspects of the property.

Additionally, if properties under a triple net lease are ever sold, investors can move their capital into another triple net lease without having to pay taxes. (Make sure to read our next blog, “The 1031 Tax Exchange” to find out more about this kind of tax-deferred exchange.)

Due Diligence

As with any property investment, it’s very important to perform due diligence. NNN lease properties are particularly important as their leases can last 10-15 years, sometimes longer. It is also important to evaluate the whole picture of the tenant to consider if they are beneficial to your long-term investment. Even if they have a great credit rating, it’s worth analyzing the health of the industry to predict whether their business will remain stable, grow, or possibly decrease in the near future. Additionally, some businesses may not even have a credit rating because they’ve never owed substantial debt. For example, in years past, Dollar Tree had no credit rating because it carried no significant debt. Yet their profits at the time were quite healthy with sales of over $3 billion.

INCO Commercial can help you vet the property, its history and all relevant details that could influence your decision to invest. We will ensure the property you ultimately choose is the best match for you and your interests.

INCO Commercial is committed to our clients and their individual needs and interests. We will work closely with you and help you find the investment to suit your portfolio. Each of our agents is deeply connected to Long Beach and surrounding areas; their intimate knowledge will provide you with the best options to match your interests. Please visit our contact page, or call 562.296.1362 for immediate assistance.

 

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INCO Commercial’s Eric Christopher Discusses the Revitalization Boom of Downtown Long Beach

2016-08-23T12:59:09-07:00August 23, 2016 @ 12:53 pm|

Our very own Eric Christopher, a Senior Associate here at INCO Commercial, was featured in an article last week from the Press-Telegram. The article discusses the revitalization of Downtown Long Beach, with rising rent prices, eager investors, and the impact on the local residents.

The new face of Downtown Long Beach is much different than its difficult past. According to the article, the area was infested with crime in the mid-90s, producing 25% of the area’s crime rate, yet only accounting for 3.5% of the Long Beach population. However, community and city leaders banded together to clean up the area and its reputation. This proved quite successful, as we have been witnessing the effects of their efforts.

For the past couple of years, investors have been reinvigorating the Downtown Long Beach scene, buying up old apartment buildings and creating new, enticing developments. Christopher notes that a recent growth in income has encouraged an influx of offers on apartments, often times sight unseen. He also indicates that a trifecta of low interest rates on building sales, increasing rents, plus a large population of people who can’t afford a down payment on a single family residence help contribute to these gentrification trends seen in downtown Long Beach. Though rents are increasing in the Downtown Long Beach area, they are still much cheaper than neighboring cities of the Los Angeles area, thus bringing in tenants willing to get in on this boom.

For the full article, please click on the link below:

Downtown Long Beach Revitalization: Urban Renewal or Economic Cleansing?

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Why Geography Matters

2018-12-19T12:43:39-08:00August 15, 2016 @ 12:41 pm|

It’s old hat to even the most novice investors that location is essential in any kind of real estate investment. However, there are several layers to this tried and true cliché. INCO Commercial explores some of the deeper reasons why “location, location, location” is key in commercial real estate.

Zoning

Zoning will play a crucial role in your decision to buy or invest since it will dictate the allowable uses for the property or building. INCO Commercial’s expert knowledge of the Long Beach and surrounding areas will help you explore the different properties available for your zoning requirements. Our agents will also ensure that a zoning verification letter from the local municipality is on file, which will disclose in full detail the zoning allowances for the particular property.

There may be additional limitations on the property itself, depending on what kind of neighborhood it exists in. Some historical properties or neighborhoods will have restrictions on the kinds of updates allowed on both the exterior and interior of a structure.

The actual title and land surveys will also help outline important features, restrictions, and history of the property. The survey can also reveal if the property has insurable access, meaning it has legally deeded access to the roads adjacent to the property. If there is no accessible road directly in front of the property, an easement may be required; an easement allows legal access through another person’s property.

These kinds of details are crucial to know before securing a property. By working with INCO Commercial, you can rest assured that our agents will cover all of the necessary bases to guarantee you have full disclosure of the property before making your decision.

Environmental Assessments

This is where the history of the building comes into play. Any prior use of chemicals on the property can cause potential problems. For example, if a building was previously owned by dry cleaners, gas stations or any business involving chemical usage, this must be addressed. Additionally, it is not only important on the property of interest, but the adjacent properties as well. You should expect to have a brief evaluation done of the neighboring properties, to ensure you have done your due diligence on a potential investment. INCO Commercial’s extensive industry experience will help outline each necessary step in the acquisition of your property.

Flood Zones and Seismic Activity

It is highly suggested to obtain flooding and seismic reports, to determine if the property could sustain significant damage, and to see what kind of additional retrofitting or precautions are required to sustain the least damage to the property. INCO Commercial can also help determine if these things are necessary due to any new legislation.

Proximity to Traffic and/or Resources

Location is also a priority in terms of what is important to your business. Retail and restaurant properties obviously fare better in high-visibility or high-traffic locations, relying in part on that exposure to entice customers. Further, knowing the demographics of the area, and what type of customer the business would attract help ensure success as well. If you have a new business and are unsure in which demographic your business would best succeed, INCO Commercial can help examine this with you. Comparing similar businesses, as well as their locations and other factors can help predict an ideal location for your endeavor.

A warehouse or industrial business would benefit either having access to a major highway or even a nearby port, such as the Port of Los Angeles or the Port of Long Beach. Efficiency in transportation helps cut time and costs on both the outgoing and receiving end of things.

Businesses that do not require foot traffic still need to pick a strategic location to satisfy their employees. This can involve choosing a location central to where employees are commuting from, but also proximity to restaurants, cafes, or other things that can perk up the work day and ultimately improve employee productivity.

Working with Your Investor

Choosing a property and confirming due diligence is done on the property can be an intimidating process. Working closely with an investment broker like INCO Commercial can help relieve some of the pressure off your shoulders. We have fine-tuned our process in our 40+ years of experience, but we also incorporate the latest trends and developments into our strategies to best serve our clients.  

No matter what kind of commercial real estate interest you have, INCO Commercial can help you assess what would be the wisest investment options available to you. Our agents’ intimate knowledge of the local Long Beach and surrounding areas can help guide you to properties that would best fit the demands and dynamic of your business. INCO Commercial and our affiliates, IMC Municipal Consulting and CORE Property Management are dedicated to assisting our clients and maximizing their success.

Explore the rest of our website for a full explanation of INCO Commercial’s services, and visit our contact page to find the office location and contact information most convenient for you!

 

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INCO Commercial Featured in the Long Beach Business Journal

2018-12-19T12:43:39-08:00August 2, 2016 @ 3:51 pm|

INCO Commercial is proud to share two articles from the Long Beach Business Journal featuring two of our top team members.

From the ‘Business Improvement Districts’ section, the second article down entitled “Magnolia Industrial Group” highlights the improvement of a particular industrial area that had suffered a loss of interest and investment due to its past history of crime and other problems. Magnolia Industrial Group (MIG) board member and INCO Commercial president, Bill Townsend, along with area property owners and assistance from the City of Long Beach have spearheaded this effort. The MIG Property and Business Improvement District (PBID) is the first of its kind in an industrial zone. The project has seen great success in restoring confidence in property owners for that area, due to one key feature: private security.

Click on the image below to read a PDF of the full article.

MIG

In another article, entitled “Low Interest Rates Forecasted to Persist, Driving Buyer Demand for Residential Properties,” an INCO Commercial senior associate, Eric Christopher discusses taking advantage of the economy’s low interest rates. Christopher specializes in multi-family properties and sees a great opportunity in the Long Beach area for multi-family investors due to the combination of low interest rates and rising rental costs. He indicates that with the interest rates as low as they are, the next five to seven years promise great cash flow on a fixed-rate loan.

Please click on the images below to read the full PDF article.

LBBJ E Christopher

“Low Interest Rates Forecasted to Persist, Driving Buyer Demand for Residential Properties” 

LBBJ pg 2

“Interest Rates” cont’d

 

 

 

 

 

 

 

 

 

 

 

We are proud of our team at INCO Commercial. Our relationships and connections with local businesses and organizations have provided a positive, lasting impact in developing a stronger community. Learn more by exploring our website, or visit our contact page to reach out to the office nearest you!

 

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INCO Commercial Honored at Long Beach Chamber of Commerce Gala

2016-07-27T12:23:22-07:00July 27, 2016 @ 12:14 pm|

Press Release: INCO Commercial Receives Prestigious Industry Award

A press release issued this morning featured INCO Commercial’s receipt of the distinguished Industry Award.  This, among other certificates of recognition, were presented last month at the 125th Long Beach Chamber of Commerce Gala and 20th Anniversary celebration of the Long Beach Commercial Real Estate Council.  INCO Commercial is proud and honored to be recognized for our efforts in serving and developing the local community!

Click on the link below to read the full press release:

INCO COMMERCIAL Receives Long Beach City of Commerce Industry Award

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Benefits of Investing in Commercial Real Estate

2018-12-19T12:43:39-08:00July 25, 2016 @ 11:07 am|

When people consider investing in property, many limit their scope to single residential properties. However, considering just residential property investment are missing out on a potentially huge opportunity. The income and equity potential of investing in commercial real estate is much larger, despite the risks seeming greater than residential properties. Below, INCO Commercial reviews the different types of commercial properties and the benefits involved for investing in each type of property.

Commercial Real Estate Overview

Commercial real estate (CRE) is any land or properties intended to turn a profit either from capital gain or rental income. When brokers refer to ‘residential’ property, they’re usually referring to single-family dwellings, whereas as commercial properties in California include anything more than five dwellings (units).

Other commercial properties may include retail buildings, office spaces, warehouses, industrial buildings, apartment buildings, “mixed use” buildings, where the property might have a combination or mix of residential, commercial, and industrial. For example, there may be a retail store or restaurant on ground level, while offices or apartments are located on higher levels.

Benefits of Investing in Commercial Real Estate

Across the nation, Southern California is still considered the most strategic place to expand a commercial real estate portfolio. Even foreign investors have recognized the southland’s potential, as an influx of international companies and wealthy individuals from other countries have flooded the market in the past few years.

Though getting into commercial real estate as a novice may be intimidating at first, there are real benefits to investing in CRE properties whether you’re looking to expand your portfolio or are considering various investment options.

Higher Income Potential

Because of the property size and the number of tenants a commercial property can potentially hold, the annual return is much higher than other investments, such as stock dividends, which, on average, yield between a 2% to 3% annual return. The range is much higher for CRE, between 5% and 15%. Multi-family properties or apartment buildings tend to be toward the lower end, with suburban office spaces at the higher end.

Leveraging Increases Cash Flow – Higher Equity Potential

Much of the equity built in commercial real estate is increased through leveraging. Leveraging means using borrowed capital to make an investment, with the expectation that the profits will be greater than the payable interest. In this way, you can put down a small percentage of the purchase price on a particular property, finance the remainder, and go on to invest in more properties in the same way. Real estate leveraging allows you to enjoy a much higher return on investment than buying outright. Commercial real estate leases are also typically more favorable for banks and easier to approve because of the higher likelihood of a stable income flow, as long as they determine you’re not over-leveraging your assets.

More Tenants, Less Risk

In a multiple occupancy building, there is less risk of income loss when it comes to vacancies as other tenants are still contributing to covering your operating costs. This is opposed to vacancies on a single family residential, which equals 100% income loss. Also, since many commercial real estate leases are NNN, tenants are also responsible for the main expenses on the property, in addition to their base rents: Net taxes, Net building expenses, and Net Common Area Maintenance (CAM) fees.

Security Advantage

Unlike stocks, bonds, and other forms of investment, commercial real estate promises value both the land itself and the improvements on the property, such as structures, infrastructure, and landscaping. Additionally, the needs for CRE properties are fairly stable: housing (apartment complexes or mobile home parks), service industries (retail or office space), or storage and production (industrial warehouses). INCO Commercial can help you choose the best location and property within your desired area to maximize your advantage.

Excellent Appreciation Value

Whereas investments like stocks don’t allow for much more than buying and selling based on the market, commercial real estate owners are able to invest in improvements on their properties, as long as regulations are met and necessary local government approvals are secured. A commercial real estate property owner can modernize the property, raise rents, restyle the exterior or interior, or even apply for a zoning change. Inflation can also contribute to the value of existing properties; and while new properties will cost more to develop than older properties, existing locations still increase in value along with the newer local developments.

Need advice on commercial real estate investing? INCO Commercial provides high quality commercial real estate brokerage and advisory services to our clients, with expertise in multi-family housing, restaurant sales, mergers, and acquisitions. We are committed to improving the local community with the best agents and client-centered service we can provide.

Our affiliated companies, CORE Property Management and IMC Municipal Consulting are also ready to work hand-in-hand, depending on our clients’ needs. Core Property Management provides complete or partial assistance in effectively managing your properties to maximize your income potential. IMC Municipal Consulting provides advisory services for real estate and community development, and can help strategically navigate large-scale economic projects in compliance with local laws and environmental codes.

Explore our website, or visit our contact page to see which INCO Commercial office can best serve you.

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INCO Commercial’s Award-Winning Dedication to the Long Beach Community

2018-12-19T12:43:40-08:00July 19, 2016 @ 1:29 pm|

Discover why INCO Commercial is one of the top commercial and industrial real estate companies in the Long Beach area. Our agents are highly committed to the Long Beach and surrounding areas, each having a longstanding local connection and thus a personal investment in this unique region. INCO Commercial realizes the growth and potential in the Long Beach area, and works closely with the city, developers, and community to ensure everyone’s goals are fulfilled.

Because of this incredible dedication and commitment to the community and it’s development, INCO Commercial was honored at the 125th Long Beach Area Chamber of Commerce Gala last month. INCO Commercial received several awards: a “Certificate of Recognition” from the United States House of Representatives, presented by Congressman Alan Lowenthal; the “Industry Award” from the 33rd Senate District of the State of California; “Certificate of Recognition” from the State of California Senate, presented by Senator Ricardo Lara of the 33rd District and Chair of Senate Appropriations Committee; and another “Certificate of Recognition” from the California Legislature Assembly presented by Mike Gipson, assembly member of the 64th District in Wilmington. A press release will be issued soon with more details and information on these prestigious awards.

Learn more about some of INCO Commercial’s amazing team members in this brief video featured at the gala.

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Investing in Raw Land

2018-12-19T12:43:40-08:00July 19, 2016 @ 1:25 pm|

When you’re looking to diversify your investments, consider your options when it comes to raw land. Land is considered ‘raw’ or ‘unimproved’ if there are no man-made changes to the property. An investment on land that is raw is typically solid, especially near a developed area. Whether you are interested in developing, subdividing, or are a land speculator, opportunities will always arise for raw land. Here, we’ll help give you some insight on purchasing raw land. When you’re ready to make a move, INCO Commercial can work with you and help guide every step of the way.

Exploring Your Purpose

What are your subsequent plans for acquiring raw land? Will it sit and appreciate, or will you develop it in the near future? Your answers can determine how this process unfolds. In the eyes of the bank, purchasing raw or “unimproved” land is riskier than purchasing “improved” land. If you need a loan, you may encounter a hesitation on the bank’s part to front the money on raw land since it isn’t actively producing profits (as opposed to a building with businesses that potentially generates income). A larger down payment is not uncommon, as well as a high interest rate on a loan. The lender will likely also want to see a development plan and what your intentions are before approving a loan. However, don’t let these factors alone deter you; land is still considered a good investment because it’s a tangible asset, versus stocks or bonds, for example. It’s also a limited resource, and highly coveted as our populations and developments continue to increase.

It’s also important to consider the logistics of maintaining raw land. For instance you will still have to pay property tax, although on unimproved land, it is typically less than if it has development on it. Other maintenance costs can include upkeep as well as ensuring that there are no overtly dangerous liabilities on the property where people can potentially become injured or worse. But again, that should not be a deterrent and often can be mitigated with something as simple as posting “No Trespassing” signs or creating boundaries.

Surveying the Land

As clichéd as it is, location is always a big factor, whether you choose to develop the land or not. If the property is more remote, road and utility line accessibility should be assessed; even features such as the soil type and grade can be crucial, depending on what your intended use for the property is. Having the land surveyed can help answer all of those questions. It can also help find out if there are any ‘easements,’ meaning that a neighbor or other party is entitled to use part of your land for a specific purpose (i.e., passing through). Different kinds of surveys are available; subdivision survey if you plan on dividing and selling or leasing the land, or have a more comprehensive survey conducted, like the ALTA/ACSM land survey (American Land Title Association/American Congress on Surveying and Mapping). The ALTA Survey can reveal all of that information, including the easements or encroachments on the property.

Be sure to consider even uncommon situations, for example the need for a septic system if the property is too far from the main municipal sewage system. Situations like this could create other obstacles, in this example it would be determining if you have adequate space for a septic system while maintaining enough distance from the water source to prevent contamination. Navigating situations like this is where the value of a great team with experience starts to really pay off.

Remember that unless you have immediate need and/or plans, raw land is often a long term investment. This allows for savvy investors to be strategic with their land purchases. Land within a city or at a city’s edge will increase at a faster rate, but that doesn’t mean that raw land in other areas will not appreciate quickly as well. INCO Commercial can help look into the city or county’s long-term land use plans or scheduled additions, which can indicate any progress or development that may benefit you in the long-run.

Title Insurance & Due Diligence

Title insurance is not mandatory, but it can help ease the minds of lenders, and yourself. Unlike most insurance, which protects you in the event that something might happen, title insurance protects you from things which have already transpired, but aren’t necessarily apparent even to the trained eye. This can include forgeries or fraud on the part of previous owners, or forgotten responsibilities (or previously undisclosed inheritances, etc.), or other errors in previous transactions. Title insurance serves to help you with any legal fees or expenses if the ownership of the property is ever questioned.

Proper due diligence on your part can also save you unexpected costs and headache in the long run with a thorough research on the property and its history.  Here again is where a great team with the right experience can prove to be invaluable. The INCO Commercial team can help with your due diligence efforts to ensure maximum transparency and that you are always acting with the most accurate information possible. For example, the seller’s intentions could give insight on the true value of the property. If the current owner has only possessed the land for a short time or is selling far below market value, it raises some flags; they may know something about the land that they are not readily disclosing. With the right research and information INCO can help you assess all possible situations to help ensure that you are making a legitimate investment.

Our affiliated IMC Municipal Consulting can also work closely with you and provide assistance throughout economic development projects with as little or as much consulting as you need.

If you have any more questions about raw land investments, or any other ventures in commercial real estate, please feel free to explore our website www.incocommercial.com, or contact us at (562) 498-3395 for more information! We are happy to help answer any of your questions.

 

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What Is Involved in Developing a Vacant Lot in California?

2018-12-19T12:43:40-08:00May 16, 2016 @ 12:02 pm|

As with any commercial real estate (CRE) deal, there is a lot to consider prior to and during development of a vacant lot. Much of the information is concerned with financial or legal technicalities, but California also has a lot of environmental regulations and code to follow as well. INCO Commercial is committed to helping every step of the way, from finding the appropriately located vacant lot to match your needs, to helping complete all of the required paperwork, and ensuring everything is to code as development proceeds. Our affiliated company, IMC Municipal Consulting also provides advisory services and assistance in project development, including site selection, economic incentives, development assistance, financing, and more.

INCO Commercial can provide assistance throughout the entire process, but here are some things to consider for development of a vacant lot.

Land Availability and Purpose of Development

Because good land is typically expensive and in demand, INCO Commercial will do what we need to find the best property at the right price that will match your financial plan and development goals. Lots in or approaching bigger cities come at a higher premium. If your budget is more limited, you may want to keep your options open. Zoning requirements or usage restrictions, as well as municipality and community plans can also factor into your choice of location.

Subdivision

If the property is large, you’ll likely want to divide it into smaller lots to develop or sell, which can be more affordable for prospective buyers. Subdivision involves separating a plot of land into multiple distinct legal entities, otherwise known as “platting.” Gaining subdivision approval is part of the entitlement process. In California, there are common restrictions when it comes to subdividing property. For example, the property may have existing restrictions as part of the purchase deal, or the city/county may require that your project align with their community planning goals. Additionally, there may be requirements on the size of the property to allow for subdivision, and of course, zoning regulations must be met as well. INCO Commercial can help guide you through the requirements and reviews necessary for considering subdividing a property.

 Entitlement

Once you go through the process for approval to develop a lot, your land is now considered “entitled.” There is even a ‘pre-entitlement’ process, which examines the preliminary designs, architectural plans, engineering, noise & air qualities, and fiscal reports.  California actually has one of the most detailed and complicated entitlements process in the nation. The entitlement process in California is broken down into three separate processes, including meeting the requirements set forth by environmental and local codes, review by courts and local governments, and finally a citizen and community-based initiatives process. Though these processes may seem strict and arduous, California has developed these for the best interest in protecting environmentally sensitive land for our future.

Types of Zoning Limits.

There are often three major types of zoning: residence, commercial and industrial. Each zone is subdivided into categories with its own rules, for instance, yard size for houses, building height and so on. Other zoning laws protect certain areas from being developed such as historical sites, coastal spots, and potential flood regions. Keep in mind that if your development project does not fall within city guidelines, a rezoning is required, and in California, a city council review is also required. Public participation is also mandatory for commercial development, as even one minor change in the community can have a wide-ranging impact on local businesses and residences.

Density Bonus

If you’re thinking of developing land for apartments, senior or child care facilities, the density bonus is something you might want to consider before you choose a lot. Normally, the local land use laws often dictate how big a structure can be built, as well as the size of any “residential units.” A density bonus is something of a workaround for such laws, offering developers compensation for putting up affordable housing for low-income families or seniors, and for building around mass transit systems. The caveat with building affordable housing in order to be granted the density bonus is that the affordability must be maintained over a minimum time frame of thirty years.

California Environmental Quality Act (CEQA)

Again, CRE in California can be unique due to the state’s attention to the environment. Developers here must comply with the California Environmental Quality Act. The law requires that any direct physical change or an indirect change that would affect the environment must undergo an environmental review, and depending on the potential effects, may require another review and even a plan for mitigation if the effects are severe enough. INCO’s partner firm IMC Municipal Consulting can play a key role in helping guide you through these types of requirements and regulations.

INCO Commercial and our affiliates, IMC Municipal Consulting and CORE Property Management are dedicated to assisting our clients and maximizing their success. We work closely with each of our clients to assess and evaluate their goals to ensure the properties we find are best suited for the investment. Please visit our contact page for the office that can best serve you!

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From LBBJ: Demand for Retail Space Remains Strong

2018-12-19T12:43:40-08:00May 10, 2016 @ 3:13 pm|

An article released by The Long Beach Business Journal discusses the strength in the current retail space market, despite closures from big-box retailers in the community. The article also features an interview with INCO Commercial’s own principal and board member, Douglas Shea.

Closures from retail giants Sports Authority and Sports Chalet have left some uncertain about the market for retail space. However, Shea reassures that the current low interest rates have been driving an upward momentum in commercial real estate that will likely continue throughout the year. The demand for ‘shop spaces’ typically ranging from 1,500-3,000 SF are doing especially well, as new entrepreneurs are taking advantage of those low interest rates.

Retail spaces larger than 10,000 SF are the ones facing more difficulty in filling vacancies. Brian Russell, Vice President of Coldwell Banker Commercial BLAIR WESTMAC predicts that with the closures of Sports Authority and Sports Chalet, other sports retailers will benefit and strengthen their footing in the market. Shea even suggests those retailers may expand to those vacant stores, noting that the demand for brick-and-mortar sports retail stores is still significant. For the time being, Russell proposes a furniture store would do well in the larger vacant retail spaces in Long Beach.

Both Shea and Russell agree if the low interest rates and current climate continues, the positive trends and momentum will prevail. Yet, the proposed 1% Long Beach sales tax increase on the June ballot may threaten the upward trends, as well as continued rental rate increases on retailers and restaurateurs.

Still, new developments and major retail projects provide encouragement as they get underway throughout Long Beach. Most notable is the planned 250,000 SF of retail space on the currently vacant lot next to Long Beach Airport slated for ‘airport-themed’ development. Burnham USA Equities, Inc., which purchased the land, is expecting to break ground next year. Additionally, a new 241-room hotel is also planned for the site by Nexus Development, with construction beginning as early as July of this year.

Overall, the Long Beach area promises a strong outlook for retail shops and commercial real estate investors, who can capitalize on the low interest rates and local market conditions.

Read the full-length article by clicking on the link below.

Despite More Big Box Store Closures, Demand For Retail Space Strong

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The Benefits to Investing in a Multi-Family Commercial Property

2018-12-19T12:43:40-08:00May 9, 2016 @ 12:37 pm|

For those of you new to investing in commercial real estate, or just looking to expand your portfolio, a multi-family commercial property is a solid investment with a great potential in amassing capital.

INCO Commercial is one of the leading companies in commercial real estate serving the Long Beach, Irvine, and Riverside areas. We are committed to the best interests of our clients and will work closely together every step of the way. If you’re considering investing in a multi-family commercial property, here are some benefits to consider on this kind of investment. First, we’ll explain what qualifies as a commercial multi-family property.

What is a Commercial Multi-Family Property?

To qualify as a commercial real estate property, a multi-family residential must have 5+ dwellings (units). Multi-family buildings are different by location (urban or suburban) and size of construction. Garden apartments are multi-family apartment buildings with three floors or fewer; mid/high-rise are multi-family buildings with four floors or higher.

Benefits of a Multi-Family Property Investment

Greater Cash Flow
Cash flow on a multi-family residential unit is greater than a single-family for obvious reasons: there are more tenants paying rent. Bigger apartment buildings are less influenced by any single vacancy; the more units and thus, tenants you have, the less risk you carry. With a single-family residential, one vacancy means you’re losing out on 100% of rental income. In a multi-family property, the loss from one vacancy is only a percentage of the total income, and other tenants are still contributing to covering the operating costs.

More Expensive, but Easier to Finance
The total cost of purchasing commercial real estate, including multi-family properties is higher, but lenders sometimes favor financing these types of property. This is because multi-family properties generate a much stronger cash flow month to month, therefore banks are sometimes more likely to approve the loan than with a single-family residential as they might perceive the risk on those loans defaulting to be less.

Easier Management, Whether it’s You or a Hired Management Team
With all of the properties in one location, managing a multi-family commercial property can many times be easier than managing several single family units spread out. Not only does this include managing tenants, but overseeing maintenance, employees, etc.

Because of the increased cash flow, you may be able to hire a team to manage your property, which in a large-scale apartment complex might be worth it to you. The management team can supervise the property, manage the maintenance crew, take phone calls, and even handle audits, rent, and much more.

INCO Commercial’s affiliate, CORE Property Management specializes in managing commercial and industrial properties, whether you need a full team, or just some assistance in a few areas. With CORE Property Management, you can rest assured that everything will be handled within the local, state, and federal regulations and other best practices. For a complete list of services provided, find out more about CORE Property Management.

A dedicated management team can allow for less stress on your end, and more time to manage other investments or projects you may have on the table.

Excellent Appreciation
The appreciation of a multi-family commercial property can depend on several factors, but many of those factors can be within your control. Although the base cost is usually higher on this kind of property, you will usually see a greater benefit in appreciation than with a single-family residential. By maintaining the property in top condition and making some improvements over time, you can add value to the property to increase the return on your investment. This means more equity for you if you choose to sell it down the line. Our expert agents at INCO Commercial can work with you to evaluate how to maximize the value of your property, and even help determine when it would be appropriate to make improvements and adjust rents.

High Demand
In Southern California, the demand to rent is not going away any time soon. In fact, rents, home sales, and home prices are expected to rise throughout 2016 in Los Angeles County alone. People will always need a place to live, and with rising home prices, many people will continue to rent since they cannot afford to buy. With our local expertise, INCO Commercial agents can help project which properties would have the best potential and match your business interests.

Investing in commercial real estate has historically proven to be a sound strategy for increasing personal wealth. It is also a way to take an active role and have more control over your investments as opposed to the stock market or other types of investments. Working with INCO Commercial also offers peace of mind, knowing that our 40+ years of industry experience and intimate local knowledge of the commercial real estate market will be working on your side.

Learn more about our agents, or go to our contact page and contact the office which would best serve you. Discover our other services and affiliates associated with INCO Commercial, or explore the other types of properties our company specializes in. We look forward to working with you!

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