Commercial real estate is becoming a more expansive field as of late, garnering more and more interest from newcomers.
Between 2012 and 2017, it has been said that the commercial real estate industry expanded by an annual growth rate of nearly 4%. From this growth, it has been shown that nearly 75 billion U.S. dollars have been put into the industry just in 2016 alone. Similarly, reported data released by the Real Estate Investing Report show that 55% of millennials have shown interest in investing in real estate.
For those that are interested in entering the market with a strong investment, it is worth knowing how you can get an advantage as a investor, primarily through the various commercial lease types. The most popular commercial lease types are those of gross, percentage, and triple net leasing. A lease agreement on commercial property, a triple net lease (NNN lease) is a contract where the lessee agrees to pay the real estate taxes, building insurance and maintenance on a property.
There are advantages and disadvantages to this one lease of the particular commercial lease types, as the NNN leasing will allow for lower rents within apartments, meaning that a landlord will be less likely to have vacant housing, yet if a property is not properly maintained it can lead toward higher costs for the lessee.
Regarding property maintenance, a well maintained property is a good thing for both the landlord and the tenant, meaning lower maintenance costs and lower rent. However, if the building requires some form of serious maintenance, say plumbing wise or a new roof, than the landlord is at the advantage, as this will shouldered by the tenants. Yet, if the tenants do not report issues within their apartment during they lease, leaving the apartment in disrepair upon leaving, then that is on the landlord to pay for.
Of the commercial lease types, a disadvantage of the NNN lease for the tenant is the fact that they must pay property taxes. These property taxes can prove to be quite high, unless they are contested by the landlord, which sometimes does not happen, as they are not the one footing the bill. Yet, this can come back to haunt the landlord if the tenant were to move out by the end of their lease, or beforehand, as they will be left having to pay the higher tax bills until the property is filled again. If this issue were not to be fixed before finding another tenant, it might turn out that the landlord ends up stuck with a vacant property.
The decision as to which of the commercial lease types is right for the property, lessee and landlord is up to what looks best on paper. Deciding that comes down to those owning the property, how likely they are to fill the property over time, and the long-term maintenance care required for the property.