About us
AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate. Established in 1998.
Who We Serve
AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate. Established in 1998.
Tax Benefits of Commercial Real Estate
/in InsightsWith the tax deadline approaching in April, many investors will reflect on the strategies they employ and look for deductions that will lessen their tax liability. Investing in commercial real estate offers more than just property appreciation and steady cash flow—it also unlocks a variety of tax advantages. Understanding the Tax Benefits of Commercial Real Estate can empower investors to reduce their tax liabilities while reinvesting savings into growing their portfolios. By leveraging deductions, depreciation strategies, and tax-deferred exchanges, investors can maximize returns and enhance overall financial performance. This comprehensive guide explores how smart tax planning transforms commercial real estate investments into profitable ventures. Throughout this post, we’ll dive into the most effective methods for capturing the Tax Benefits of Commercial Real Estate and provide actionable insights to help you succeed. Whether you’re a seasoned investor or just starting out, embracing these strategies is essential for long-term financial success.
Here we’re outlining some significant money-saving incentives for investing in commercial real estate – contrary to stocks and bonds.
Tax Benefits of Commercial Real Estate
Let’s understand the commercial real estate tax benefits.
Interest Expense Deductions
The first tax advantage of commercial real estate investing is the ability to deduct the interest paid on a commercial mortgage.
For example, if an investor pays $15,000 each month in commercial mortgage payments, of which $3,500 is paid for interest, they would be able to get a deduction off their federal income taxes of around $42,000 for the year.
Depreciation Deductions
Given the fact that commercial real estate has some level of depreciation over time, investors can find tax benefits from this aspect as well.
Currently, the IRS allows owners of commercial properties to depreciate the asset over a 39-year period. So, if the investor purchased a commercial property valued at $3.2 million, they’d be able to take a depreciation deduction of about $82,000 a year for those 39 years.
Non-Mortgage Deductions
Additionally, commercial real estate investors can enjoy tax deductions from the costs they incur related to:
Operating Expense Deductions
Many expenses associated with managing and maintaining commercial properties are tax-deductible, including:
By deducting these operational expenses, investors can lower their taxable income while maintaining their properties.
1031 Exchange: Deferring Capital Gains Taxes
A 1031 Exchange is a valuable tax-deferral strategy for commercial real estate investors, allowing them to reinvest proceeds from a sold property into another “like-kind” property without immediately paying capital gains taxes. This approach offers significant benefits, such as deferring taxes on property sales and enabling portfolio growth by reinvesting the full sale proceeds. However, to qualify for this tax advantage, the replacement property must be of equal or greater value, and the transaction must adhere to specific timelines outlined by the IRS.
Bonus Depreciation
Bonus depreciation offers another immediate tax benefit by allowing investors to accelerate the depreciation of qualified property components in the first year of ownership. This means that instead of spreading out deductions over several years, you can write off a significant portion of the property’s cost right away. Often paired with a cost segregation study—which breaks down the property into components eligible for faster depreciation—bonus depreciation can lead to substantial tax savings during the early years of investment. Be aware, though, that bonus depreciation rules are subject to change, and the available percentage may phase down over time, so staying updated on current regulations is essential.
Reduced Impact on Beneficiaries
Lastly, commercial real estate investors not only enjoy tax benefits themselves but also their beneficiaries can too.
When the investor’s heirs inherit the property, they will only owe taxes on the amount that the property has appreciated, not the full value. This can mean the difference between your beneficiaries being able to afford the property or needing to sell it after your passing.
For example, if an investor purchased a commercial property at $2 million, and at the time of their passing it had appreciated to $2.6 million, the beneficiaries will only pay taxes on the $600,000 appreciation. As such, this can save the heirs hundreds of thousands of dollars, and maybe even millions.
Recent Developments and Future Trends
The tax landscape for commercial real estate is continually evolving, with regulatory changes and market trends influencing available benefits. Recently, adjustments in depreciation schedules and renewed interest in real estate investment trusts (REITs) have created new opportunities—and challenges—for investors. With more investors turning to REITs, which often benefit from favorable tax treatments, there is increased competition in the market. Additionally, shifts in interest rates and potential legislative changes mean that staying informed is more critical than ever. Keeping abreast of these trends can help you adapt your investment strategy to maximize tax savings and optimize returns over the long term.
Expert Tips and Best Practices
Maximizing tax benefits in commercial real estate requires not only understanding the available deductions and strategies but also implementing best practices to ensure compliance and efficiency. Consider these expert tips:
Conclusion
Commercial real estate investing offers not only strong potential for income and appreciation but also significant tax advantages that can maximize your returns. From depreciation and mortgage interest deductions to tax-deferred exchanges and energy efficiency credits, savvy investors can leverage these benefits to build wealth efficiently.
Understanding the tax benefits of CRE is essential to creating a robust investment strategy. Consulting with a tax professional can help you navigate the complexities and ensure you take full advantage of the incentives available.
Commercial Lending 101: What You Need to Know
/in InsightsLearn the Ins & Outs of Commercial Lending to Better Understand Your Next Steps
If you’re expanding your small business, you may be wondering: “Where will I get the funding for it?” Although personal finances and partners can put up some of the capital, much of the financing may come from a loan. Here AVANA CUSO, a financial institution specializing in commercial real estate lending, offers insight into what commercial lending is, how it works, and the various types of commercial real estate lending available.
What is Commercial Lending?
Commercial lending involves borrowing money from commercial lenders to pay for various business expenses, such as purchasing land or buildings, renovating or expanding, or buying related equipment. For instance, if you’re interested in opening a new Italian pizzeria, you’ll need to secure funding to purchase commercial property such as a building that previously housed a restaurant or a vacant lot. Then, you’ll need to build or renovate a building, and purchase kitchen equipment such as stoves, pizza ovens, seating, and decor.
What are Commercial Mortgage Lenders?
Commercial mortgage lenders back the funding of commercial loans and provide you with the up-front capital to grow your business. Commercial mortgage lenders can be credit unions, banks, asset-backed trusts, government-sponsored entities and private financial institutions.
How to Get a Commercial Loan
Securing a commercial loan involves these five steps.
4 Types of Commercial Real Estate Lending
Commercial real estate loans are popular products to which entrepreneurs look when they need a brick and mortar for an office space, storefront, production site and more. There are four major types of commercial real estate lending available:
AVANA CUSO offers a variety of these commercial real estate lending products, including commercial real estate loans, SBA 504 loans and conventional construction loans.
What are the Typical Commercial Lending Rates?
Commercial lending rates vary based on the type of loan you choose, the lender, your financial qualifications and credit score, the type of project you’re looking to finance and the market. Commercial real estate loan rates can range from 2.2% to north of 18%. AVANA CUSO offers competitive rates starting at 4.00% and can provide funding for projects up to $25 million.
About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO offers competitive and collaborative commercial lending options. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of the loans from application to approval, supporting credit unions and borrowers through the complex process. AVANA CUSO is a proud member of the AVANA Family of Companies.
Expert Advice on How to Get into the Commercial Real Estate Business
/in InsightsThe 5 Stages of Business Growth
/in Insights, UncategorizedTo Grow a Company, Entrepreneurs Must Take the Business Through Several Common Developmental Stages
Whether you’re a small business owner who runs a local restaurant or you’re the CEO of a tech startup, your company will go through the same five stages of business growth, according to the Harvard Business Review. Understanding the five basic growth phases—before embarking on a business idea or while in the earliest maturity stage—can help company founders and owners develop an effective business plan that sets the company up for success.
Grow Your Business Through the 5 Stages
The Harvard Business Review established the five major stages through which you can grow a business:
Each stage is characterized by size, diversity, complexity, managerial style, organizational structure, formal systems, strategic goals and owner involvement.
The First 2 Stages of Growth and Development: Existence and Survival
During the first two stages of business growth and development, your company is just starting out. You’re likely facing challenges, such as obtaining customers and providing existing products or services.
During the “existence” stage, business owners determine target audiences, find new markets, ensure product or service delivery is available on time, and more. It’s also a time to ensure the company has enough funds to cover the demands of this early stage. The main strategy right now is focusing on keeping the business alive.
To meet such cash flow demands, many business owners look to funding. This can include small business loans, commercial real estate loans, business loans or conventional construction loans. AVANA CUSO, its sister company LendThrive and its partner companies provide the aforementioned loans ranging in size from $2 million to $15 million for businesses in all stages.
Once a business has secured the necessary funding and successfully obtained a customer base, it may enter stage two. The second phase, known as “survival,” proves the business can be a prosperous endeavor. The issues the company faces include generating cash to break even, covering repair costs and staying in business.
The Last 3 Company Growth Stages: Success, Take-Off and Resource Maturity
The third stage, which is labeled “success,” leaves owners with one major decision-making question: Should they expand the company or remain stable?
Companies seeking expansion and growth move into the fourth stage, which is known as “take-off.” In this phase, business owners must create a business development plan outlining how the company will rapidly grow and how they’ll finance that growth. The two major areas of focus include 1. Delegation (Will the owner delegate responsibilities?), and 2. Cash (Is there enough cash flow to meet growing demand?)
Businesses that reach the fifth—and final—growth phase experience rapid growth and typically have optimal management systems in place. The main concerns facing such successful companies include consolidating and controlling financial gains and retaining an entrepreneurial spirit.
Management Factors Influencing Business Growth Strategies
There are several management factors that influence business growth strategies. Understanding and planning for these factors will aid in your company’s growth and success.
The Benefits of Understanding the Stages of Business Growth
There are four major benefits of understanding the stages of business growth. They include:
Tailoring Your Business Development Strategy
Knowing these five growth stages can help you tailor your business development strategy. The stages can inform all decisions and prepare you for the challenges ahead.
Real Estate Asset Classes for Commercial Investors
/in InsightsUnderstanding Asset Classes can Help You Achieve Your Commercial Investing Goals
As a commercial real estate investor, your success lies in being an expert in the intricacies of your field as well as the market. So, it’s important to understand all the commercial real estate asset classes, including the types of properties ripe for investment. Each property type within the real estate asset class has benefits and drawbacks that should be considered in regards to your short-term and long-term investment strategies.
Below we take you through what an asset class is, the three major real estate asset classes, and the six property types within those asset classes. The goal here is to help commercial investors understand the benefits and the best time to invest in the various types of commercial real estate.
What is an Asset Class?
Investopedia defines an asset class as “a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are thus made up of instruments that often behave similarly to one another in the marketplace.”
Examples of asset classes include:
The real estate asset class is broken into two categories: residential and commercial real estate, which are further broken down by property type and classification.
3 Classifications Within Major Real Estate Asset Classes
The major real estate asset classes are categorized by characteristics that define a property’s quality. The three major classifications range from Class A through C, with each letter grade representing a combination of factors including location, tenant income levels, potential growth and more.
The three major classifications are as follows:
Class A
Class A buildings are the highest quality properties in their market. They offer the best amenities. Such real estate has newly constructed or renovated buildings, top-ranked schools and wealthy residents. Due to such characteristics, the real estate is purchased and sold at the highest prices, thus tenants pay expensive rent rates. The competition to purchase such investment properties is high, and the properties offer a tight profit margin.
Class B
Class B properties are mid-tier investment opportunities. Typically, the buildings are older than 20 years, requiring renovations and ongoing investment. The market can be characterized as that of the middle class: quality restaurants and shops, and average school ratings all in a well-kept neighborhood. Class B real estate is considered a “value-add,” but comes with a higher risk than Class A. Profit margins are higher, and competition is lower.
Class C
Class C properties are typically older than 30 years, requiring many renovations. Although they can be purchased at a low price, the investment is deemed risky. However, if an investor is able to turn the building around, it can have excellent potential for profit.
Can Class B & Class C Become Class A Real Estate?
All properties can move up or down in classification. For instance, if Class A real estate ages to more than 20 years old and in need of several renovations, it can be downgraded to Class B. If a Class C property is extensively renovated and upgraded with the latest amenities and furnishings, plus is located in a desirable neighborhood, it has the potential to transition to Class A real estate.
6 Property Types Within Commercial Real Estate Asset Classes
There are six types of properties within commercial real estate asset classes:
Multi-Family Properties
Multifamily properties can be an attractive option for commercial real estate investors because they come with the built-in demand for housing. According to Equity Multiple, such investments are most appealing in supply-constrained markets.
Retail
Retail investments, specifically standalone retail stores, are typically the longest-running and most stable, providing long-term cash flow to investors, per Equity Multiple.
Office Buildings
Office buildings typically lend to long-term leases ranging from five to 10 years, resulting in stable returns and predictable cash flow. Such properties are most beneficial to investors during times of economic expansions as companies grow and look to add more office space.
Hospitality
According to Equity Multiple, the hotel sector can provide outsized returns in growing economies. Additionally, the leisure travel and business activities areas can lead to demand for new hotels.
Industrial
Similar to retail, industrial real estate provides some of the most stable returns on the market due to long-term leases and low overhead costs. The property type is most attractive when the manufacturing sector experiences growth.
Development
Although development properties are the riskiest investment opportunities available, they have the potential to provide the highest returns—when done right.
Real Estate Investing Classes
While this introductory article is important in understanding real estate asset classes in the commercial market, investors should continue their education with real estate investing classes. Here are several real estate investing courses you should look into:
AVANA CUSO Provides Loans for All Commercial Real Estate Asset Classes
AVANA CUSO partners with credit unions and brokers to provide commercial real estate loans for projects of all asset classes, including retail, multi-family housing, office buildings, self-storage facilities, educational institutions and much more. Our CRE loan products range from $2 to $25 million with terms of five to 10 years and amortization of up to 30 years.
Contact us today to learn more about our commercial real estate loans.
Top 5 School Credit Unions for Teachers
/in InsightsAs a new school year commences, it’s the perfect time to focus on how educators are appreciated and supported. School credit unions are specialized financial institutions that do both in truly value-added ways. By joining one of these credit unions, teachers gain access to more personalized services and products that can better meet their financial needs more so than other standardized financial institutions.
Since school credit unions are not-for-profit organizations, they have a mission of serving their members with the best rates, solutions and services possible, all while giving back to the local community’s education system.
These credit unions are able to offer such state-of-the-art, specialized services by partnering with a seasoned credit union service organization (CUSO), such as AVANA CUSO. For decades, AVANA CUSO has been partnering with credit unions across the nation to diversify CUs’ lending portfolios and better support members.
Here are some of the top school credit unions that cater their services to teachers across the United States.
1. SchoolsFirst Federal Credit Union
SchoolsFirst Federal Credit Union was founded in 1934 and is dedicated to serving California school employees and their families. In fact, they’re the largest credit union in the state and have been recognized by Forbes as the number one Best-In-State Credit Union in California. SchoolsFirst FCU is committed to offering lower rates on loans, higher rates on savings and low-to-no-fees for members.
Plus, they are actively involved in their community through events, donations, scholarships and financial literacy programs.
2. Teachers Federal Credit Union
Based out of Long Island, New York, Teachers Federal Credit Union (TFCU) has been around for more than seven decades and specializes in auto loans, mortgages and credit cards for its members.
Originally, TFCU started as a group of Long Island educators but has now grown to more than 420,000 members across the country. So while it’s not strictly a credit union for teachers anymore, it still offers incredible perks to members, such as its Smart Checking account that earns 14x the national average in interest.
3. Apple Federal Credit Union
Apple Federal Credit Union serves teachers and members of the community in Northern Virginia.
With a variety of personal and commercial banking services, they also offer exclusive perks for educators. These include getting paid up to two days early, educator lines of credit, mortgage programs, credit cards, savings accounts, retirement plans and Summer Pay accounts that help teachers plan for the months when they’re not receiving paychecks.
4. Gulf Coast Educators Federal Credit Union
Based in Texas, Gulf Coast Educators Federal Credit Union serves the financial needs of educators and school district employees across the state. Specifically catered to the needs of educators, their products and service offerings include specialized savings accounts, investment accounts, loans, CDs, credit cards and more.
5. Schools Federal Credit Union
Schools Federal Credit Union, another school credit union serving teachers in California, was founded in 1939 by a group of employees at the Los Angeles Unified School District (LAUSD). Some of their featured offerings include auto loans, HELOCs, CDs and credit cards, all at competitive rates.
Their mission has always been to provide members with financial products that help them save and earn money. As a result, they now have more than 15,000 members. To this day, they exclusively serve communities around the LAUSD as well as the Los Angeles Community College District (LACCD).
All these school credit unions empower teachers and school district employees with more personalized financial solutions and service. In addition, they are highly specialized institutions that support their local education system, which is equally valuable to the broader community.
About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial lending. For decades, we have partnered with credit unions across the country to offer competitive and collaborative loans. We also uniquely support and guide our partners through the entire lifecycle of our loans. AVANA CUSO is a proud member of the AVANA Family of Companies.
Contact us today to learn more about becoming an AVANA CUSO partner.