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Commercial real estate leases might seem daunting, especially since they're a long-term commitment and a heavy investment. But, they're not as complicated as you might think.
Generally speaking, there are three main types of commercial real estate leases:
- Gross, or Full Service, Leases
- Net Leases
3. Mortified Gross Leases
All these leases have one thing in common – they all provide a base rent with options for who pays for which operational expense. Here's a breakdown of the different lease types:
Gross/Full Service Lease
With this lease option, the tenant's rent covers all operating costs, including expenses like utilities, maintenance and property tax. The landlord pays these property operating costs with the tenant's rent. While the base rent might seem relatively high, it's the only cost to the tenant.
Many tenants prefer a gross lease – the rent is fixed, and they don't need to worry about operational costs. In the summer, for instance, you won't spend any more money as energy consumption increases.
A gross lease is easy for the tenant – they can forecast expenses and concentrate on growing their business.
You'll find gross leases mainly for retail, industrial and freestanding commercial properties.
This commercial real estate lease is highly adjustable. While the base rent might be lower than a gross lease, a net lease requires the tenant to pay fixed operating expenses, like insurance, maintenance and property taxes. The 4 types of net leases include:
- Single Net Lease: The tenant pay rent, a portion of the property tax, and utilities directly. The landlord assumes building expenses.
- Double Net Lease: Similar to a single next lease, a double net lease requires the tenant to also pay a portion of the property insurance.
- Triple Net Lease: This is perhaps the most common lease agreement – on top of their base rent, the tenant also pays for some or all of insurance, property tax, and common area maintenance.
- Absolute Triple Net Lease: This is probably the most uncommon commercial lease. In this magnified agreement, the tenant assumes all costs – they have sole responsibility of the building. While the tenant basically "owns" the building without buying it, they are also responsible for all property damage and catastrophic instances.
Modified Gross Lease
This lease offers fair middle ground for both tenants and landlords. A modified gross lease fosters a range of negotiations and dialogues around operating costs. Here, the lease rate remains fixed – even if costs increase or decrease.
Before signing a lease for your next commercial real estate space, read the proposed agreement carefully. Clarify with the landlord exactly what expenses you are responsible for.
Location, location, location – one of the biggest questions you'll need to answer with any new business is where you will locate it. Will you work from home, or set up a commercial space?
A home-based business certainly has some advantages. For instance, your commute and rent costs are nonexistent. But, you'll also sacrifice valuable business opportunities, like "walk-in" customers, brand development and community outreach. There comes a time in every small business or startup when working out of a home office becomes more of a hindrance to growth than a cost-savings measure.
Consider these top 5 reasons to choose a brick and mortar location for your new business.
1. Room to Grow
Avoid growing pains by investing in more space than you have at home. This gives your business room to expand when the time comes.
2. Professional Relationships
Many business analysts believe that a brick and mortar location offers a more professional and credible feel.
3. Room for Employees
When your business expands, you'll need a larger workforce. A commercial building will give you room for your new team members and provide everyone with enough private space to be productive.
4. More Energy
When you hire more employees – or even work out of a shared workspace – you'll have more people around to fuel your creativity. Sometimes, just being around and talking with others can spark a great new idea.
5. More Focus
Leave your home concerns where they belong – at home. When you leave the house to go to your office, you'll have more time and energy to focus on your workday and foster your business development.
Only you can determine what work environment is the most beneficial to your business, and where your work-life balance will be ideal.
When you decide it's time to expand out of your home, DRK and Company can help. We're your commercial real estate specialists in the Westerville, OH, community. Contact an agent today at 614.540.2404 to find the right brick and mortar location for your business.
For over 40 years, the commercial realtors at DRK & Company have practiced their unparalleled experience in land acquisition and development, property management, and the sale and lease of all types of commercial property. Here are the top 5 reasons you need to work with a commercial realtor on your investment.
1. Save Time
Many of our clients wear too many hats already. We can alleviate the pressure of time-consuming tasks, like compiling and reviewing listings, calling listing agents, scheduling property tours, and staying on top of lengthy negotiations – just to name a few.
2. Save Money
Perhaps most importantly, we save our clients money. Our commercial real estate agents have the skills to negotiate the best deal on all ends of the transaction. We can even help you navigate the small nuances of a lease that can save you thousands of dollars over time.
3. Listing Access
Some of our clients don't realize that commercial real estate listings are not as centralized as residential real estate. Because there are so many transactions and property types, commercial real estate has several different listing platforms – only a handful of them are open to the public. You might not have access to a majority of the market's available properties without enlisting the help of a commercial real estate agent.
4. Market Specialization
Our commercial real estate agents have market knowledge and expertise that our clients might not. After all, it's our job to stay on top of the trends in our specialization. We perform market analysis – both on paper and in the field. And we constantly keep up with supply and demand cycles of commercial real estate in the Columbus, OH region.
We pride ourselves on our integration with the Columbus community. We are in close touch with our market's movers and shakers: property and business owners, investors, colleagues, etc. And finally, we share our wealth of contacts with our clients.
Contact DRK & Company today to take care of all your commercial real estate needs. After all, there are only so many hours in a day, and we take our commercial real estate business as seriously as you take yours.
What often stands between a buyer and seller match that seems to be made in heaven? Getting a mortgage. With stricter lending rules going into effect in 2014 and 2015, it has become harder for small and mid-size lenders to award conventional loans. Lender profit margins have also dropped in recent years.
As a result, more buyers and sellers are turning to creative financing approaches including lease options, land contracts, wraparound mortgages, and contracts for deed. Otherwise, the seller is forced to lower the property's price in order to find a buyer—something they might not be willing or able to do. Creative seller financing usually gives the seller 50-80 percent of the purchase price upfront and the remaining 20-50 percent over time with interest.
Coordinating the sale
Because these types of agreement are less common, not all real estate agents are familiar with how they work and when they are suitable approaches. As a buyer or seller, your best approach is work with an agent who has experience with seller financing and can bring parties together who will both benefit from this approach.
Like other kinds of investments, creative financing has an element of risk and an increased time commitment for the seller. This makes it especially important to avoid do-it-yourself approaches. As with other types of financing, working with a qualified and knowledgeable realty professional is the best way to coordinate a commercial property sale.
To learn more about seller financing in the Columbus and central Ohio area, talk with a DRK & Company realty consultant. Call 614-540-2404.
Leases come in two flavors: long-term and short-term. Unlike choosing between ice creams—vanilla or chocolate? What sounds good to you? —the choice between a long- or short-term lease can have lasting advantages or serious repercussions.
What's long, what's short? A short term lease is typically for a term of one to five years. A long-term lease can be five years or more. An important consideration is whether you need the promise of establishing and keeping a prized location or if you need the flexibility to grow or relocate.
Short term opportunities. With a shorter commitment, you have the flexibility to up-size or up-scale as your company grows. This is especially important for start-up businesses. However, with a short-term lease, the landlord can force you to relocate after the lease is up. Rents can also change dramatically at renewal.
Long term realities. When you sign a lease for more than five years, you are locked into a decision, good or bad. However, your commitment gives you more leverage. Landlords are typically more willing to make improvements for long-term tenants. Rent increases will be pre-established. And if the building should be sold, you retain your location.
When choosing between a long- or short-term lease, consider the following:
- Your growth potential
- Is the location a perfect fit?
- Economic trends
- Shared office space alternatives
- Renewal clause options
Still have questions about leasing options and negotiations? Call DRK & Co. to talk with an agent.