The success of commercial real estate investments is dependent on several factors, each of which dictates how much return you receive against each one. While some of these factors are more obvious, like market trends, maintenance, and property type, others like taxation strategy are oftentimes overlooked.

Our job as commercial real estate brokers is to give you all available options to help you select the strategy that works best for you. In this blog post, we will explore the concept of an ‘Escrow’ and give a detailed account of the benefits of including one in your transaction.

What Is an Escrow?

An escrow is a legal agreement that allows the parties involved in a financial transaction to agree to keep funds with a third party temporarily while the transaction is being processed. The third-party agents usually charge fees for maintaining the amount.

Escrow and Commercial Real Estate Transactions

Escrow plays an important role in commercial real estate transactions, especially for people who keep commercial real estate as a major source for increasing their wealth.

Escrows come in handy for the 1031 exchange provision that allows commercial real estate investors to avoid paying  Capital Gains tax on properties if they are simply selling one to buy another of similar or higher value.

Benefits of Including an Escrow

There are several benefits of including an escrow in your commercial real estate transactions.

1. Tax Benefits

The main benefit of getting an escrow for a 1031 exchange is the associated tax benefit. 1031 exchange allows property owners to avoid paying Capital Gains  tax when they are selling off their property to buy another of similar or greater value (up to 200% of the value of their original).

For accounting purposes, the sum received from the sale is transferred to a third party that maintains it until the purchase deal for the next property is finalized. This helps the property owner avoid recording the initial sale as income.

2. Credibility and Authentication

Having an escrow arrangement also adds credibility to your claim in the commercial real estate industry. Although the industry is lively and lucrative, it has also seen its fair share of fraud, and it has made people cautious.

Having an escrow arrangement will make your claim and position more authentic to your audience.

3. Hassle-Free

With the third party maintaining the amount and taking responsibility to transfer it to the eventual seller, the entire process becomes smooth, seamless, and hassle-free.

Conclusion

To sum up, an escrow arrangement allows property owners and investors to manage commercial real estate transactions in an income-beneficial way.

If you are looking for amazing commercial real estate in the Rio Grande Valley, please contact our team. CHRE team has years of commercial real estate experience in the area and will provide you the right guidance for it.