"Building Long-Term Wealth: The Power of Generational Business Investments"

In the last article we discussed the need to understand why you want to create wealth and some tips on how to do it.  This article discusses why you might consider investing in a business or commercial property as a way of amassing wealth. 

Investing in commercial property or business ventures is widely regarded as a savvy strategy for amassing generational wealth. This approach offers several key benefits, beginning with the potential for asset appreciation. Commercial properties typically increase in value over time, particularly if they're well-situated in areas experiencing economic growth. For instance, an investor who purchases a commercial building in a burgeoning urban district may see the property's value soar as the neighborhood develops and attracts more businesses.

The generation of cash flow through rentals is another significant advantage. Commercial real estate can provide a steady income stream, thanks to longer-term lease agreements common in the sector. A practical example of this is owning a warehouse leased to a logistics company on a multi-year contract, ensuring a reliable revenue stream that can be reinvested or used to support financial stability across generations. I have one of these for sale if you are so inclined to reach out. 

Additionally, commercial real estate investments come with notable tax benefits. These can include deductions for mortgage interest, maintenance expenses, and depreciation, which collectively can reduce the taxable income derived from the property. Depreciation, in particular, serves as a tax deduction that recognizes the property's physical wear and tear over time, thereby lowering the owner's tax liability and enhancing the investment's overall profitability.

Leverage is another critical factor, allowing investors to control a large asset with a relatively small initial investment. For example, purchasing a commercial property with a 20% down payment and financing the rest through a mortgage can significantly amplify potential returns on investment capital especially when you factor that your tenants are going to pay down the mortgage.

Real estate's role as an inflation hedge is also pivotal. As inflation rises, so typically do property values and rental incomes, which can protect and even increase the purchasing power of an investor's wealth over time. This makes commercial real estate a particularly attractive asset class during periods of inflation.

Diversification benefits are evident when incorporating commercial real estate or business investments into a broader investment portfolio. Real estate often moves independently of other asset classes, like stocks and bonds, which can reduce overall portfolio volatility and risk.

The build-up of equity as mortgage loans on properties are paid down over time increases an investor's wealth. This equity can then be leveraged for further investments, creating a cycle of wealth accumulation.

Real estate offers tangible assets that can be passed down through generations, not just as financial assets but as part of a family's legacy. For instance, a family-owned retail plaza can provide both income and a physical legacy to be managed by future generations.

Investing in businesses presents opportunities for exponential growth, distinct from the more linear growth seen in traditional investments. A family that invests in a business that is already successful, for example, may see their initial investment multiply many times over if the business succeeds, providing significant wealth for future generations.

You may wish to use a multifaceted approach to building generational wealth through commercial property and business investments when combined with other investment strategies that you might consider with your trusted financial advisors. While commercial properties and business opportunities can offer substantial rewards, they also come with risks and require careful management, strategic planning, and an understanding of market dynamics to ensure your long-term success.  I can tell you however that even based on my current listings there are multiple opportunities that are available to you if only you take the time to determine if they will work for you. 

Dave Fuller, MBA is an Award Winning Commercial Realtor with Team Powerhouse Realty and the author of several business books. Need investment ideas, email dave@businessrealtor.ca and ask about his current listings or visit www.businessrealtor.ca