Future-Proofing Your Business

How Real Estate Can Become Your Most Valuable Business Asset

The business landscape is always changing. This can be the result of shifting market trends, economic challenges — such as a recession — or simply a different demographic focus, among other factors. While some of these might offer opportunities for your business, it’s also important to be resilient against the negative outcomes they could influence.

Operational safeguards, like filling staff skills gaps and inventory agility, aren’t the only ways to achieve this. Many business owners find that investing in real estate can help support financial stability. Indeed, these resources may even provide capital to fund projects that give you a competitive edge. It’s important to go into these investments in an informed and strategic way.

Why Real Estate Can Be Effective

Any type of real estate is a significant investment. Naturally, you should review your finances to make certain you can afford the purchase and upkeep of property. Before committing to buying, it’s worth understanding why real estate can be a relatively good asset for future-proofing.

Appreciation potential

Real estate is recognized as an investment type with good appreciation potential. As with any investment, appreciation is never guaranteed. A lot can affect how and whether real estate appreciates, such as local market trends and economic shifts. Based on historical data, though, real estate prices tend to rise over time. Therefore, a property asset in itself may well rise in value.

Inflation resistance

Economic shifts can be challenging for businesses. It is essential to adopt investment strategies that are resilient to inflation. Diversifying your investment portfolio can help mitigate unfavorable changes in value. You’re less dependent on a single type of resource. Real estate can be a useful part of this key strategy, as real property tends to respond well to inflation.

Purchasing individual properties solely owned by your business isn’t the only way to achieve this. Real estate investment trusts (REITs) that involve you investing in a portfolio of properties with various owners, managed by experts, are also an option. Not to mention that this is an accessible form of investment for smaller businesses without a lot of capital to invest.

Making Strategic Real Estate Choices

There are no quick fixes to future-proofing your business. You need to make strategic choices that enable you to leverage your resources and respond to challenges. The same applies to choosing real-estate properties as investments that support your company’s ongoing stability.

One important area to consider is market trends. Researching the market now and its predicted shifts in the near future enables you to make informed decisions about where to place your investment so that it aligns with your needs. For instance, the rise of hybrid and remote working has impacted how office spaces are used. As a result, investing in commercial real estate that reflects the changing sizes of workforces and the types of use enables you to meet the evolving needs of business tenants.

Another strategic step is assessing the risks involved with each potential real estate asset in your portfolio. You can’t help future-proof your business with an asset that is likely to lose significant value or become impractical to manage.

When you’re researching the above-mentioned market trends, also look for the market risks. Different locations and property types may be at different points of the economic life cycle, which affects their stability or growth as an asset. There are also specific property type risks to analyze. Commercial properties in some areas may be subject to high tenant turnover, while residential properties in some locations may be at higher risk of natural disaster damage. Getting a good understanding of the risk profile enables you to make choices that are right for your business.

Enhancing the Value of Real Estate

It’s not always wise to take an entirely passive approach to using real estate for future-proofing. As with any asset, you need to find ways to squeeze as much value out of your property investments as possible. This optimizes the amount and strength of the resources you have available to you in difficult times.

If your strategy is to buy property now and sell it at a profit later, one thing that can disrupt the value is capital gains tax. This is the tax you pay on the profit of the sale of property. However, using a 1031 exchange strategy can help you to mitigate the immediate impact of capital gains tax. This refers to the Internal Revenue Service (IRS) code 1031 which allows you to defer paying tax on the sale of a property if you reinvest the gains in a like-kind property.

There are certain benefits to this, as you can leverage the value of a sale to gain more diverse or profitable assets, like multiple rental properties or large commercial buildings. You can also use 1031 exchanges as many times as you like, compounding your investment over time to boost returns. It’s important to remember that this is just a deferment. You will eventually still need to pay capital gains tax if you sell without reinvesting later on.

Another way to enhance the value of your real estate properties is with mindful upgrades. This might involve renovations — like room additions or heating, ventilation, and air conditioning updates — that can improve the selling price. You can also install smart technology, such as smart thermostats and security systems — that may enable you to attract renters.

Conclusion

Mindful real estate investments can help to future-proof your business. It’s always important to be strategic in your approach while also finding ways to maximize your investment. You might also consider how real estate investments can be a part of your staff benefits package. Long-term staff could be eligible to get shares in company real estate portfolios, benefitting from the rental returns and sales. This can encourage talent retention and engagement which helps keep your business strong.

By Indiana Lee, BOSS contributor