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There are many different types of commercial real estate you can invest in, including multi-family, retail, and industrial. But one segment that often gets overlooked is hotels.

So, are hotels really a good investment? Will they be profitable? And how exactly do you go about investing in a hotel?

We’ll answer all these questions and more in this complete guide.

Should You Invest in a Hotel?

Like all forms of commercial real estate, whether or not you should invest in a hotel is largely up to you. Buying and managing a hotel property is a big commitment, so you need to make sure you’re prepared for it.

If you do have your heart set on buying a hotel there are two things you need to know:

1. It’s a Large Financial Investment: Buying a hotel that’s part of a franchise will cost at least $195,000. Then you need to consider all the other costs that come along with owning a hotel, including maintenance, repairs, renovations, and staff.

2. It’s a Lot of Work: In order to continue to attract guests you’ll have to keep your property in pristine condition. You’ll also need to hire and train staff to ensure you provide an exceptional experience for your guests. If you’re not prepared to do this yourself, make sure to hire a skilled manager to oversee the property.

If the cost and the workload don’t bother you, and you find a profitable hotel that’s a good deal, then you should absolutely invest in it. However, if you’re looking for a low-cost investment that’s more hands-off then a hotel likely isn’t for you.

Are Hotels Good Investments?

The answer to this question really depends on the property you’re looking at. Some hotels are great investments that you should absolutely pounce on. Others are mediocre to poor investments that will require way too much of your time and money to make profitable.

A better question to ask is, what makes a hotel a good investment? Here are a few things to look for:

• Location: While this is an important factor for all types of real estate, it’s especially important for hotels. If your property isn’t located near airports, attractions, restaurants, beaches, and other areas frequented by tourists then you’re going to have a hard time attracting guests.

• Is it a Brand Name Hotel? Investing in a brand-name hotel is more expensive, but it’s also easier. Because you already have brand recognition you won’t need to invest as much in marketing. Plus, lenders will be more likely to finance your business with a big brand attached to it.

• Profit & Loss Statement: Have a look at the profit and loss statement (P&L) over the last three years. This will tell you whether or not the hotel is actually making money on a consistent basis.

• Operating Expenses: Hotels are expensive to run, so make sure to review the operating expenses over the last few years. This will allow you to estimate your yearly costs. You can also have the property inspected to identify any potential issues you might have to deal with down the line. The fewer expenses there are the better the investment is.

• Occupancy Rate: Is the hotel regularly full? Are there any downtimes of the year where things slow down? Look at the occupancy rate over the last three years to answer these questions. Ideally, any hotel you invest in will already be popular with guests, which makes it a lot easier to promote.

• Average Rate: Just because a hotel is busy doesn’t mean it’s profitable. If the hotel has to offer lower rates to attract guests then there might be underlying issues. Compare a hotel’s rates to similar properties to see how they match up. If a property is charging average or higher than average rates and still attracting a lot of guests, that’s a good sign.

• Decor: The look and feel of a hotel play a big part in whether or not people want to stay there. If a hotel’s decor is old and out of date it’s likely going to need to be replaced, which is an added expense.

• Amenities: Amenities like pools, spas, and gyms will attract more guests, but they also mean more work for you and your staff. Keep that in mind when considering whether or not a specific hotel is right for you.

If a property passes all the above tests then yes, it is most certainly a good investment. Just make sure to do your research so there aren’t any surprises after you take possession.

How Much Do Hotel Owners Make?

On average, hotel owners can expect to make anywhere from $49,000 – $74,000 per year. However, depending on the size and profitability of your hotel you could potentially make much more.

Keep in mind that these salaries are based on the profits you’ll have leftover after you reinvest money back into the business. While a hotel will likely generate much more revenue than the salaries listed above, a lot of that money will have to be used for employee wages, repairs and maintenance, upgrades, franchise fees, and other expenses.

Of course, that salary estimate doesn’t take into account the appreciation of your property’s value. Assuming you maintain your hotel well it will increase in value every year and could net you a healthy profit if you choose to sell it in the future.

The Pros and Cons of Investing in Hotels

Below are some reasons why hotels can be a great and investment, as well as a few reasons why they might not be right for you:

Pros

• Easy to Raise Rates: Having long-term tenants is great for stability, but it also makes it difficult to raise rents. However, with hotels all your guests are temporary. This makes it easy to raise your rates whenever it makes sense to do so.

• High Yield: Studies show that hotels generally trade at higher cap rates than other types of commercial properties.

• Tax Benefits: As you depreciate the asset, you can subtract those losses from your income for a tax credit. Hotels have a number of real, personal, and intangible assets that can be written off, meaning they provide a number of tax benefits.

• They Provide Lots of Jobs: Hotels require dozens, maybe even hundreds of staff to be run effectively. This creates a lot of jobs and helps the local economy. For many hotel owners, this is a major source of pride.

Cons

• Less Stability: With multi-family and retail properties you can have tenants sign leases for multiple years. This gives you a great amount of stability and security. However, you don’t have this luxury with hotels. Every guest is temporary and you might experience busy and slow times during the year.

• More Involved: Other types of commercial properties also give you the option of signing net leases, which make tenants responsible for certain aspects of the property. You don’t have this option with hotels, which means you’re always responsible for every area of the business.

• Hiring Staff: Hotels require a lot more staff than other types of commercial properties. Hiring and managing your team is very time-consuming, and you need to develop systems to ensure you consistently hire the right people.

How to Invest in a Hotel

Want to know how to own hotel business? There are many different hotel investment opportunities available, even if you’re not interested in buying an entire property yourself. Here are three different ways to invest in a hotel:

Buy a Hotel

This is the most direct way to invest in a hotel, but as we’ve already discussed it’s not for everyone. Sure, you get to keep all the profits for yourself, but you also take on all the risk. It’s not a passive investment and will require a lot of involvement on your part to ensure it’s managed in a profitable way.

Join a Crowdfunded Hotel Investment

If you don’t have the capital to buy a hotel then a crowdfunded investment might be a better option for you. In this scenario, the investor lists the deal on a crowdfunding platform to raise money to buy the hotel. You can then invest an amount you feel comfortable with and own a piece of the property. While investing in this way limits your upside it also greatly reduces your risk.

Plus, you don’t need nearly as much capital.

Buy a Stock

The simplest way to invest in hotels is through the stock market. There are many different hotel investment funds (known as hospitality REITS) that allow you to invest in multiple hotels at once. You can also buy the stocks of publicly traded hotel companies that you feel have the potential to go up in value.

Conclusion

As you can see, there’s a lot to consider when investing in hotel properties. This is why most seasoned investors partner with an experienced commercial real estate broker. These professionals can help you identify hotels that meet your criteria, arrange inspections, value properties, and negotiate a fair price.

Hotels can be an excellent investment if you find the right deal. Just make sure to do your homework and seek advice from experts to find the best properties.

When you’re considering investing in a commercial property it’s important to understand what type of lease is in place. This will impact how involved you are in the day-to-day management of the property, so you’ll need to choose leases that fit your business model.

A single-net lease is one of the more common leases you’ll run into in commercial real estate. In this guide, we’ll go over how this lease works, the pros and cons of using it for your properties, and how it compares to other lease types.

Keep reading to learn everything you need to know about single net leases.

What is a Single Net Lease?

A single net lease (also known as a net lease or N lease) is an agreement where the tenant is responsible for paying the property taxes, in addition to their monthly rent. The landlord then pays for the insurance and any maintenance and repairs that are required.

How Does a Single Net Lease Work?

As a landlord, you can collect rent for all your commercial tenants. However, depending on your lease you may also be able to bill them for additional expenses. These are known as the three nets: property taxes, insurance, and repairs and maintenance.

With a single net lease, the tenant is responsible for paying one of the nets. In this case, the property taxes. The amount the tenant pays depends on the agreement. Their portion of the property taxes may be included as part of their rent, or it might be a separate payment that fluctuates depending on changing tax rates.

In multi-unit buildings, the portion of the taxes a tenant pays is usually determined based on the size of their unit. For example, if a tenant is renting half the property they’ll pay half the taxes and the other tenants will cover the rest.

Because tenants who have a single net lease are responsible for an additional cost some landlords choose to reduce the amount of monthly rent they owe. However, this is totally up to the landlord and is negotiable just like every other component of a lease.

What are the Pros of Using a Single Net Lease?

A single net lease provides you with two main benefits:

• Increased Profits: You don’t need to use your tenants’ rent to pay your property taxes, so you can keep more of it as profit.

• You’re Protected Against Tax Increases: If your local area decides to increase taxes you simply pass the added expense on to your tenants. This means your income is unaffected when taxes go up.

What are the Cons of Using a Single Net Lease?

While a single net lease does have its benefits there are some downsides for landlords:

• You Need to Be Hands-On: Even though your taxes are covered there are still many other costs you’re responsible for. This type of lease also requires you to actively manage the property.

• Maintenance and Repairs: The most time-consuming part of owning a commercial building is dealing with the maintenance and repairs. With a single net lease, you either need to manage this yourself or hire someone to do it for you.

• Not Protected Against All Costs: Insurance hikes and unexpected repairs happen, and it will be up to you to pay for them. If you don’t properly budget for this it will eat into your profits.

Single Net Lease vs Double Net Lease

A double net lease is similar to a single net lease, except that the tenant also pays for the property insurance in addition to the taxes. The landlord is responsible for all the repairs and maintenance. Like property taxes, the amount the tenant contributes to insurance is usually proportional to the size of their unit.

Double net leases are a little more common than single net leases, as landlords have another cost covered for them. With a double net lease, you’re protected against increases to both your taxes and insurance, which allows you to keep even more profits from the rent you collect.

Keep in mind though that the more additional charges you add the less your tenants will expect to pay in rent. Again, this is negotiable but it’s something to keep in mind.

Single Net Lease vs Triple Net Lease

As the name implies, a triple net lease requires tenants to pay for all three nets: property taxes, insurance, and repairs and maintenance.

With this type of lease, virtually all the responsibility falls on the tenant, allowing the landlord to be more hands-off. So, if you’re looking to invest in a property but aren’t interested in actively managing it, this is likely the right lease for you.

When compared to a single net lease, a triple net lease favors the landlord much more. As such, it’s the most common type of lease in commercial real estate.

When to Use a Single Net Lease

If you find yourself in a position to negotiate a lease with a tenant you may be wondering what type of lease you should use.

A single net lease might be for you if you want to have more control over how the property is run. While having to look after repairs and maintenance is a big responsibility it allows you to make sure things are done your way and on your schedule.

With that being said, if you want to take a more active role in managing your property a double net lease is probably a better choice. This lease allows you to control how the property is managed while also providing the additional benefit of having your property insurance covered for you.

When Not to Use a Single Net Lease

If you don’t want to be responsible for the day-to-day management of the property then a single net lease isn’t a good idea.

With a single net lease, you still need to collect payments, pay the property insurance, schedule maintenance tasks, and deal with unexpected repairs. You’ll either have to do all this yourself or hire a property manager, which is another expense.

For those who are more interested in investing in properties rather than managing them, a triple net lease is a much better choice. With this lease, you can mostly leave everything up to the tenants. This frees you up to spend your time on other areas of your business.

Tips for Investing in a Single Net Lease

Are you looking at a property that has a single net lease? Here are some things to consider:

• What’s included in the lease? Every lease is a little different. There may be additional clauses in the lease other than the ones described in this guide. Make sure you read through the lease and understand all of your responsibilities.

• What condition is the property in? Since you’ll be responsible for all repairs and maintenance it’s important to understand what you’re getting into. Inspect the property so you have a good understanding of the amount of upkeep that’s required. Generally speaking, the older the property is the more expensive it will be to maintain.

• How much work are you willing to take on? Managing a property with a single net lease is a lot of work, so be honest with yourself about how much you’re willing to do. If the responsibilities outlined in the lease seem like too much, and you’re not prepared to hire a property manager, then the investment probably isn’t for you.

Seek Guidance from a Commercial Real Estate Broker

As you can see, understanding your commercial real estate lease is extremely important. Some leases are more complicated than others, so it’s a good idea to have another set of eyes to ensure nothing is missed.

A commercial real estate broker will help you review the lease for any property you’re considering investing in. They’ll be able to clearly outline all of your responsibilities to help you decide if the property works for your business.

If you want to get the best price for your commercial property, you need to go out and find the right buyers. And in order to do that, you have to master commercial real estate marketing.

There are many different marketing strategies you can employ to promote your property, each with its own advantages. Savvy real estate professionals use a combination of these tactics to get as many eyes on a property as possible.

In this guide, we’ll go over everything you need to know about commercial real estate marketing and show you how you can use it to get more offers on your properties.

Types of Commercial Real Estate Marketing

In the commercial real estate industry, marketing can be broken down into three main types:

• Traditional Marketing: Promoting properties through signs, flyers, direct mail, and print ads.

• Relationship Marketing: Using your connections and networking to find potential buyers who might be interested in your properties.

• Digital Marketing: Utilizing online tools like social media, email marketing, SEO, and PPC advertising.

When executed correctly, all these approaches can work. Depending on who you’re targeting you may only choose one or two marketing types. Or if you want to reach as many people as possible you might use all three.

Define Your Audience and Create a Marketing Plan

Marketing initiatives can be expensive, so you don’t want to spend blindly. You need to do your research and establish a plan to ensure you invest in the strategies that will generate the best return for you.

This starts by defining your audience. When you begin promoting a property, create a profile of your ideal buyer. This includes their age, income, interests, and any other information you feel is important.

Once you know who your audience is ask yourself the following questions:

• How do they spend their time?

• Where are you most likely to reach them?

• What forms of marketing are most likely to appeal to them?

With this information, you’ll have a better idea of how to best spend your marketing dollars.

Traditional Marketing for Commercial Real Estate

Some people think that traditional forms of media aren’t worth it anymore, but depending on who you’re targeting they can still be extremely effective.

Here are some traditional marketing tactics to consider for your next campaign:

Signage

This goes without saying, but the first step to marketing a commercial property is to put up a for-sale sign. Keep the text large and readable, use eye-catching colors, and include a number for interested buyers to call.

Commercial Real Estate Marketing Flyers

This tried and true method is still used successfully by many sellers to promote properties. Commercial real estate marketing brochures and flyers can be handed out to prospective buyers, used for direct mail campaigns, or be made available to download online.

Here are a few things you should include to create a flyer that will capture people’s attention:

• Lots of high-quality photos.

• A map that clearly indicates where the property is located.

• A list of the property’s various features.

• Information about the surrounding area.

• A floorplan.

• Your contact information.

While a bit old-fashioned, you’d be surprised by the results that a quality flyer or brochure can deliver.

Print Advertising

If you know your audience regularly reads certain print publications you might want to consider placing an ad in them.

A simple ad in the local newspaper might catch the attention of an interested party. Or you can opt for a magazine ad, which gives you the ability to get a little more creative and feature full-color images.

More than any other strategy, when it comes to print ads it’s important to know your audience. Make sure the publication’s readership matches your ideal buyer. If not, the ad will likely be a waste of money.

If you’re interested in running a print ad, commercial real estate trade journals are likely the best place to publish it.

Relationship Marketing

When it comes to selling commercial real estate, leveraging your connections and using word of mouth is often the best way to find a buyer. This is why hiring a commercial real estate broker is a wise decision. They’ll have contacts throughout your local area and often know potential buyers who will be interested in your property.

With that being said, here are few ways to sell your property through relationship marketing:

Tell Your Friends and Family

One of the easiest ways you can promote your property is by simply telling people that it’s for sale. Chances are your friends and family won’t be interested, but they might know someone who is. Perhaps they can put you in touch with a possible buyer, or word might eventually spread to a potential investor.

Either way, simply talking about your property is free so there’s no harm in doing it.

Attend Industry Events

If there are any commercial real estate investing events or conferences in your area they may present an excellent opportunity to find an interested party. Investors prefer to do business with people they know, so if you do a good job of networking you’ll likely come up with a number of strong leads.

Even if the people you talk to aren’t interested they could point you to someone who is. They might even be able to introduce you which will help you build trust with the buyer.

Hold Your Own Event

A great way to raise awareness about your property is to hold an invent and invite brokers, investors, members of the press, and other influencers. Make sure to have plenty of brochures available and encourage guests to explore the property. Offering food and beverages doesn’t hurt either.

Even if your future buyer doesn’t attend, if you get people talking about your event the right person will eventually hear about it.

Commercial Real Estate Digital Marketing

In this day and age, most marketing takes place online. Not only can you reach a lot of people through digital marketing, but it’s also a lot easier to track your return on investment.

Below are a few ways you can promote your property online:

Online Listings

The first step you should take is to get your property listed online. This could be on your commercial real estate broker’s website, listing sites like CoStar and LoopNet, or a combination of both.

Try to get your property listed in as many places as possible, as this increases the chances of someone finding it.

The same tips that apply to a flyer or brochure apply here as well. High-quality photos, a detailed list of features, and information about the surrounding area are key. In addition to this, when writing your property description, keep the following in mind:

• Don’t Use Too Many Adjectives: Describe your property in a way that builds excitement, but don’t go overboard. Too many adjectives make it seem like you’re overselling it.

• Highlight Unique Features: Is there something that’s truly unique about your property? Make sure it’s featured prominently in the listing.

• Use Non-Traditional Photo Angles: A lot of commercial marketing listings look the same, so try to change things up by shooting your property from different angles. Get creative with your photography to capture people’s attention.

Create a Property Website

Online listings are useful, but you’re often limited in what you can do with them. Creating your own website gives you the freedom to market your property exactly how you want. It also allows you to provide more information than you’d be able to in a property listing.

Having a website gives you somewhere to direct potential buyers. And if SEO is implemented properly it can extend your reach as well. Try to include relevant local keywords throughout your site to have a better chance of showing up in online searches.

There are many website builders available these days that make creating a website easy. Plus, most commercial real estate brokers offer property websites as part of their marketing package.

Social Media

One of the easiest ways to promote your property online is to post it on social media. The number of people who see your post will depend largely on your following, but it’s free to post so there’s really no reason not to. Plus, there’s always a chance it gets shared by an influencer.

The three best social media platforms for commercial real estate are LinkedIn, Facebook, and Twitter. So, definitely post a link to your listing or website there. If you have some eye-catching photos it doesn’t hurt to feature them on Instagram as well.

Commercial Real Estate Email Marketing

Email marketing might seem a bit dated, but it’s still extremely effective. The only issue is actually getting people’s emails. If you already have an email list of qualified leads that’s great, but if not this tactic isn’t going to be very useful.

This is another benefit of employing a commercial real estate broker. A good broker will likely have a long list of potential buyers they can email your property to.

Use an attention-grabbing subject line to get people to open your email, then include a brief description of the property. It’s best to keep emails short (under 200 words) and include a link to your website or listing so readers can learn more.

Online Advertising

If you really want to drive traffic to your listing an online ad campaign is probably the best way to do it. Even with a budget of just $15 a day you should be able to get dozens of people clicking on your listing.

The two most popular kinds of online ads are:

• Google: These allow you to target keywords related to your listing and appear in Google searches. They’re a little more expensive, but if you target the right keywords you’ll usually get more interested buyers.

• Facebook Ads: Use Facebook’s wealth of data to target specific demographics and show up in people’s newsfeed. They’re cheaper than Google ads, but keep in mind people generally don’t go to Facebook to look at real estate, so you might get more looky-loos.

If you have the budget, the best commercial real estate advertising strategy is likely to use both platforms to reach as many people as possible.

Commercial Real Estate Marketing Software

As you can see, marketing a commercial property is a big undertaking. Luckily, there are some tools and software available that make the process a little easier:

• SharpLaunch: An all-in-one marketing software that offers tools for property websites, SEO, interactive maps, email marketing, and more.

• Matterport: This innovative technology allows you to create a 3D rendering of your property to show to prospective buyers.

• PropertyCapsule: Use this tool to publish your property information in multiple formats, including websites, floor plans, and flyers.

Should You Hire a Commercial Real Estate Marketing Agency?

Commercial real estate marketing agencies have the skills and resources necessary to effectively promote your property. If you don’t have the time to market your property yourself, or you’d rather work with someone who has the experience, then partnering with an agency is certainly a good choice.

However, if you already have a commercial real estate broker finding an agency likely isn’t necessary. Most brokers will offer their own marketing services, and they might already work with a top marketing agency. Plus, when you hire a broker you not only have access to their commercial real estate marketing ideas, you also get someone to help you vet buyers and advise you during negotiations.

How to Measure Marketing ROI

Marketing is expensive, so it’s important to measure your return on investment (ROI) for each strategy you employ. That way, you’ll know what worked and what didn’t.

To start, you need a way to track your results:

• For print ads, create a special phone number or landing page to direct people to. That way, you can determine how many leads the ad generated.

• Install Google Analytics on your website to see where your traffic is coming from (social media, ads, Google search, etc.).

• Track the data for all your ad campaigns, including reach and cost-per-click.

• Install pixels on contact forms to help you determine which campaigns resulted in the most submissions.

Based on this data, determine your cost per lead, cost per tour, and cost per sale. Use this information the next time you promote a property to maximize your marketing dollars.

Conclusion

Marketing a commercial property can seem overwhelming at first. But once you know the best strategies to use it becomes a lot more manageable. And if you’d like some help with marketing and finding qualified buyers, a commercial real estate broker is an excellent option.

If you’re thinking about investing in commercial real estate then this is definitely an exciting time for you. Purchasing the right property can provide you with extra annual income and a very nice return if you choose to sell it sometime down the road.

But what kind of property should you choose? There are plenty of options and one idea that often gets overlooked is buying land for investment. While it may not seem as exciting as other property types, we’re here to show you why this might just be the best choice for your portfolio.

Below you’ll find everything you need to know about purchasing land, along with 11 reasons why buying land is a good investment.

What is Retail Property?

Retail real estate refers to any property that consists of shopping and entertainment establishments. This could include clothing stores, grocery stores, restaurants, and any other business that sells products and services to consumers.

Terms to Know

To start, let’s go over a few of the terms you’ll need to know if you’re thinking about purchasing land:

Air Rights: The space above the land. Having the air rights gives you the ability to use, rent, or develop that space.

Building Height Restrictions: Every piece of land has restrictions defining how tall a structure on the land can be.

Floor Area Ratio (FAR): A building’s total floor area in relation to the plot of land it sits on. Every property will have a FAR that it must adhere to.

Ingress and Egress:The right by a property’s owner to enter (ingress) and exit (egress) the property. This is important if you purchase a piece of land that doesn’t have direct road access.

Mineral Rights:The ability to extract minerals (oil, gas, coal, metal ores, stones, sands, or salts) from the land.

Parcel of Land:A lot of land that’s been defined by the county, city, or municipality.

Permitted Uses:Other uses for the land that city or county officials may allow despite the property’s zoning regulations.

Raw Land:A plot of land that doesn’t have any established structure on it, that can be used for commercial or residential development, farming, or the harvesting of natural resources.

Subdividing:The process of dividing a lot with the goal of developing different areas separately.

Topography:The shape and features of the land. For example, is the land bare and flat, or are there plenty of hills and vegetation?

Water Rights:The right of a property owner to use any body of water on their land as they see fit, as long as it doesn’t affect those upstream or downstream.

Zoning:Rules and regulations that govern what a piece of land can be used for, as defined by the county or municipality.

Zoning variance:A request made by the property owner to use the land for purposes other than what’s permitted by the current zoning regulations.

11 Reasons to Buy Land for an Investment

Considering investing in raw land? Here are a few reasons why this is a great idea:

It’s Inexpensive

Perhaps the best reason to buy vacant land is that it’s cheap, since the lack of any physical structures brings the price way down.

Of course, if you plan on developing the property there will be significant costs involved. However, there’s nothing stopping you from leaving the land as-is and treating it as an investment.

For new investors with a smaller budget, this can be a great way to enter the market.

There’s Less to Worry About

Most commercial properties you’ll buy will come with a variety of buildings and structures. While some will be in good shape others may be in need of repairs. Because of this, you’ll need to inspect any buildings on the property carefully to identify potential issues.

You’ll also likely inherit a few tenants. For the most part this will be good, but it’s possible you might end up with some troublemakers. And if the property has a high amount of vacancy you’ll have to figure out how to fill the empty spaces.

With raw land, you won’t have to deal with these problems. This makes the buying process a lot simpler.

You Don’t Need to Maintain It

If you have buildings on your property they’re going to need to be maintained. It doesn’t matter how new the buildings are or what shape they’re in when you buy them, they’ll require regular maintenance to keep them in proper working order.

With any sort of structure also comes the threat of theft and vandalism, meaning you’re going to have to think about security.

Raw land doesn’t need any maintenance and there’s nothing that can be stolen. This makes it a hands-off investment that won’t require a lot of work.

Fewer Ongoing Expenses

Because there’s no maintenance or management required there are also minimal expenses. There are no utility bills, and property insurance and taxes will be marginal if you don’t plan on developing it.

You also don’t need to worry about the depreciation of buildings and other assets on the land which reduces your risk.

More Possibilities

If you invest in a property with buildings already on it it’s difficult and costly to make changes. For example, say you buy a property with retail spaces on it. If you want to convert it to an office building it’s going to take a lot of time and money to do that.

However, with vacant land you’re only limited by the zoning regulations. And even then, it’s possible you can be granted an exception due to permitted uses or a zoning variance. This gives you a lot more options for development.

Raw Land is Scarce

Whenever a vacant lot gets developed into a condo building, retail center, or industrial property, that’s one less piece of raw land on the market. These types of properties are in decline and it’s getting harder and harder to find undeveloped land to purchase.

As an investor, having a rare commodity is always a good thing. If people are looking for raw land their options will likely be limited. This could mean a higher price for your property when you plan to sell it.

Less Competition

In general, vacant lots have less competition than developed ones. Most investors are looking for land that already has established businesses on it and some don’t see all the great possibilities that raw land provides.

The Cons of Investing in Retail Property

No real estate investment is without its drawbacks. Here are a few things to consider if you’re thinking about purchasing a retail property:

It’s Impacted by Economic Downturns

Retail businesses can be very up and down and are often hit the hardest by an economic downturn. If your tenants fall on hard times and have to close their businesses it could lead to an unexpected amount of vacancy.

Having a diverse group of tenants can give you some protection from this, but you should still expect to lose a few tenants when a recession occurs.

It Can Be Difficult to Find New Tenants

There aren’t always plenty of people looking to start new businesses and rent commercial space. If you find yourself with a vacancy it can take a lot of time to find the right tenant to fill it.

Luckily, the longer lease terms mean that once you find a good tenant they’ll be with you for a long time. This mitigates the problem somewhat, but it’s still something to think about.

Changes to the Area Can Affect Property Value

The value of every piece of real estate is impacted by its location, and retail properties are no exception. Stores rely heavily upon foot traffic and anything that reduces that could harm the value of your property.

If a popular business moves out of the neighborhood it could mean fewer customers coming to the area. Even something as simple as a traffic pattern change can negatively affect how desirable your location is, which could mean fewer tenants and lower rents.

How to Find the Right Retail Property

We’ve established all the reasons why purchasing retail real estate might be a good idea for you, but once you make the decision to invest how do you find the right property? Here are a few tips:

Choose a Good Location

The first thing any potential tenants will be looking for is a good location. Having a quality location will make it easier to attract new businesses and allow you to charge higher rents.

Some things you should look for are:

• Popular big-box stores nearby that will attract customers to the area.

• A property that’s easily accessible.

• Lots of parking, either on the property or nearby.

• An area that’s up and coming. Look for a location that lots of new businesses are moving to and avoid areas that a number of businesses seem to be moving out of.

Assess the Condition of the Property

Maintenance and repairs are often a property owner’s primary expenses. Plus, businesses want to move into an attractive space that will be appealing to customers. If your property is constantly in disrepair it will make it harder to find new tenants and keep your existing ones.

So, finding a property that’s in good condition will be critical to your success. Hire an inspector to have a look and report back to you with anything you should be concerned about. If you’re still interested in a lot that needs repairs you should negotiate a tenant improvement allowance (TI) so you can fix up the space before you take occupancy.

Have a Look at the Financials

Before investing in retail real estate you need to be sure that it will be profitable for you. In order to determine this there are two metrics you should look at:

Net Operating Income: This will give you a good idea of what your annual income will be. To determine this number, subtract the property’s operating expenses and vacancy from its scheduled gross income.

Capitalization Rate: In addition to your annual income you’ll also want to know what the rate of return on your investment will be. You can estimate this with the capitalization rate, which you get by dividing the net operating income by the property’s value.

Review the Existing Leases

It’s important to know what type of lease structure is currently in place, as this will affect how much work you’ll have to do.

Absolute net leases are the most hands-off, with all expenses and responsibilities falling on the tenant. As discussed earlier, triple net leases only require you to deal with larger repairs.

Double-net leases mean tenants will cover the taxes and building insurance, while you’ll be in charge of maintenance and repairs. There’s also a full-service lease where you’ll be responsible for everything.

As you can see, the conditions can vary greatly depending on the lease, so make sure you know what you’re getting into.

Hire a Commercial Real Estate Broker

This is especially good advice for new investors. A commercial real estate broker will help you find properties that meet your criteria. They can also arrange for a wide array of inspections and guide you through the negotiation process.

Buying retail real estate is a major purchase, so it’s always a good idea to bring in experts who can advise you and help you make the right decision.

Conclusion

Investing in retail property can be a great decision for the right buyer. If you’re thinking about purchasing this type of real estate be sure to do your research first and evaluate all of your options. Assuming you follow the right steps this type of investment should be very profitable for you.

When you’re considering investing in a commercial property, it’s important to understand what type of lease is in place. This will have a major impact on your responsibilities, how hands-on you’ll need to be, and potentially how much rent you charge.

There are a number of different types of leases, but in this article, we’re going to focus on the double net lease. This is one of the most common types of commercial leases so it’s important to be familiar with it.

Keep reading to learn how a double net lease works, the benefits, and more.

What is a Double Net Lease?

A double net lease (also known as a net-net lease or NN lease) is an agreement where the tenant agrees to pay for the property taxes and insurance, in addition to their monthly rent. The landlord is then responsible for all maintenance and repair costs. Because the tenant is paying for additional expenses their monthly rent is sometimes (but not always) reduced.

How Does a Double Net Lease Work?

All commercial tenants are responsible for paying monthly rent, but depending on their lease they may be obligated to cover other expenses as well. This is what’s known as a net lease, where the tenant pays for one or more of the three nets: property taxes, insurance, and maintenance and repairs.

As a double net lease implies, tenants are responsible for two of the nets (property taxes and insurance). These additional payments might be combined into the rent to form one lump sum payment, or they could be separate and fluctuate depending on changing costs.

Like rent, the amount tenants pay for taxes and insurance is usually proportional to the size of the unit they’re renting. For example, if a tenant is renting 25% of a building their share of the expenses will usually be 25%.

Even though the tenants are paying for these costs, as the landlord it’s still a good idea to have these payments pass through you so you can identify any payment issues.

The Benefits of a Double Net Lease

As a landlord, a double net lease provides you with two primary benefits:

 

• More profit: Because your tenants are paying part of your expenses you can keep more of the rent as profit.

 

• You’re Protected Against Price Increases: Rising taxes and insurance rates can eat into your profits. However, a double net lease protects you against this, since you’re not responsible for those costs.

The Downsides of a Double Net Lease

While a double net lease may work out well for a landlord there are still some drawbacks to worry about:

 

• They Don’t Reduce Your Workload: While you have fewer financial responsibilities you still need to act as the landlord, collect all the payments, and actively manage the property.

 

• You’re Responsible for Maintenance and Repairs: The most difficult part of owning commercial real estate is managing maintenance and repairs. Unfortunately, with this type of lease that responsibility falls on you.

• Unexpected Costs: Because not all of your expenses are covered by your tenants you’re still at risk of unexpected costs that come with maintaining a property.

Double Net Lease vs Single Net Lease

A single net lease is similar to a double net lease, except that the tenant is only responsible for the property taxes. The landlord then pays for any expenses associated with property insurance and maintenance and repairs.

Because tenants are only responsible for one additional cost this type of lease usually isn’t as popular amongst landlords. They’re also one of the least common types of leases.

One potential benefit of a single net lease is that you might be able to charge your tenants more rent, since they have fewer expenses. This isn’t a hard and fast rule though. Every lease is negotiable so don’t count on this being the case.

Double Net Lease vs Triple Net Lease

With a triple net lease, the tenant is responsible for all three nets: property taxes, insurance, and maintenance and repairs. This is often the preferred type of lease for landlords since all of their additional expenses are covered.

Most importantly, because tenants are responsible for the upkeep of the property the landlord can be very hands-off. If you’re just looking to invest in a property and don’t want to actively manage it then this might be the ideal situation for you.

While tenants have more costs there are some benefits to them as well. This type of lease gives them more control over the property and how it looks. Many tenants will be happy to pay a little more if they don’t have to ask permission to make changes to their unit.

When to Use a Double Net Lease

When negotiating leases with your tenants you have a number of different options. So, when does a double net lease make the most sense? If you don’t want to be responsible for expenses like taxes and insurance but still want to actively manage your property then it makes sense to utilize this type of lease.

Commercial real estate is a valuable investment, so you may decide that you feel more comfortable looking after the upkeep yourself. While overseeing maintenance and repairs takes up a lot of time and resources, you can ensure your property is maintained up to your standards. A double net lease allows you to do this while still getting help from tenants for additional expenses.

When Not to Use a Double Net Lease

A double net lease has some benefits, but it’s not for everyone. If you’re more interested in being an investor than a landlord then a triple net lease will likely be better for you.

Double net leases still leave you with a lot of responsibilities that require you to take an active role in the management of the property. You’ll either need to oversee the property yourself or hire a property manager to do this for you, which will take away from your profits.

As we discussed, there are some benefits to overseeing the upkeep of your property. But if you feel your time and money are better spent elsewhere then negotiate a lease that makes the tenant responsible for this.

Tips for Investing in a Double Net Lease

Are you considering investing in a property with a double net lease? Here are a few tips:

 

• Review the Lease: Every double net lease is different, so make sure you understand all of your responsibilities before buying the property. There may be various clauses built into the lease that will result in more work for you, so you need to know what you’re getting into.

 

• Inspect the Condition of the Property: Because you’ll be paying for maintenance and repairs take a good long look at the property. What are the yearly maintenance costs? Are there any repairs that will need to be performed in the near future? Make sure to factor this into your projected expenses.

• Assess How Much Work You’ll Be Doing: Because a double net lease requires you to manage the property yourself you should estimate how much time this will take you. Then determine whether you’re able to take on that responsibility. If not, you should either look at triple net properties or consider hiring a property manager (assuming you can afford that).

How a Commercial Real Estate Broker Can Help

Commercial property leases are complicated, which is why savvy investors partner with an experienced commercial real estate broker. These industry professionals will help you assess every component of a property, including the lease.

Your broker will ensure you understand every section of the lease and make you aware of all your responsibilities. This will help you make more informed decisions about potential investments.

In order to maintain the value of your commercial properties, you need to properly care for them. This means performing regular commercial property maintenance to ensure everything is in working order. Not only does the lead to happy tenants but it also means you’ll receive maximum value if you ever decide to sell.

So, what’s involved in commercial property maintenance, and how do you stay on top of all the tasks that come along with it? Keep reading to learn everything you need to know about caring for your properties.

What is Commercial Property Maintenance?

Commercial property maintenance refers to any regular tasks that need to be completed to maintain appearances and keep the building functional.

Commercial property maintenance refers to any regular tasks that need to be completed to maintain appearances and keep the building functional.

This can include anything from mowing lawns and washing windows to HVAC servicing and plumbing inspections. Every property is unique and will require different types of maintenance. So, before investing in a piece of commercial real estate make sure you know what kind of upkeep is required and understand what you’re getting into.

Who’s Responsible for Commercial Property Maintenance?

As the owner, the responsibility of maintaining the property ultimately falls to you. However, that doesn’t necessarily mean you have to be the one who does the work. There are a number of ways you can assign and delegate these tasks.

When it comes to maintenance, commercial property owners generally have three options:

 

• Do the work yourself: If you’re dealing with a smaller property, and you enjoy repairs and maintenance, you may elect to do some of the work yourself. This is more suited for hands-on owners who want to be involved in the day-to-day operation of the building. Keep in mind that for things like electrical, plumbing, and HVAC, it’s always recommended to hire professionals.

 

• Hire a Commercial Property Maintenance Service Provider: These companies offer a number of services, including cleaning, pressure washing, landscape maintenance, and general repairs. This is a great option if you want to keep things simple since you can hire one company to handle most or all of the work for you.

 

• Make Your Tenants Responsible for Maintenance:  If you want to be completely hands-off you can simply make the tenant responsible for all repairs and maintenance. This can be done by having them sign a NNN or absolute NNN lease. Some modified gross leases may also include this stipulation as well.

Commercial Property Maintenance Checklist

As you might expect, commercial real estate requires a lot of regular maintenance. This will differ from one property to another, but the following is a list of tasks you’ll almost certainly have to deal with:

Landscaping

While not essential to the function of your building, regular landscaping is necessary to keep the property attractive for tenants and guests. This can include mowing lawns, pruning plants, killing weeds, and irrigation.

Cleaning

Properties get dirty, so things like pressure washing, window washing, and parking lot sweeping are a must. Janitorial services will also need to be arranged to keep the interior of the building clean.

HVAC

Any heating and cooling units inside your building have to be checking regularly. Air filters need to be replaced at least once a month and air intakes and exhaust systems require regular cleaning.

Electrical

It’s recommended to check all your electrical systems at least once a year to ensure they’re working properly. This includes breakers, switches, batteries, outlets, and any other electrical components.

Plumbing

It’s also recommended to do an annual inspection of your pumps, valves, water heaters, irrigation, and other plumbing systems. Check for leaks and other issues that could result in expensive problems down the road.

Roof

Have your roof inspected once a year to see if any repairs are needed. A small leak may not seem like a big deal now, but it can quickly grow into a larger issue so it’s better to catch these things early and get them taken care of.

Safety System

Proper safety systems are a legal requirement for every commercial building, so perform regular checks of your smoke alarms, sprinklers, fire extinguishers, and carbon monoxide alarms.

General Maintenance

It’s a good idea to do a regular walk around the property to see if anything is out of place or needs repair. This could include things like:

 

• Burnt out light bulbs

 

• Loose tiles

 

• Drywall damage

 

• Items that need repainting

Commercial Property Maintenance Costs

Commercial property maintenance charges will vary wildly from one property to another. Factors that impact maintenance expenses include:

 

• The size of the property

 

• Number of buildings

 

• Age of the buildings (older structures need more maintenance)

 

• Types of amenities

• The amount of grass, gardens, plants, etc.

• Whether or not the property has a parking lot or parking garage

This is why it’s so important to do your due diligence when investing in commercial real estate. The sale price might be within your budget, but if the yearly maintenance costs are more than you expected you might end up regretting it.

Make sure you have a firm understanding of all the expenses associated with a property. Talk to the former owner and see if you can get your hands on their maintenance records. Costs will fluctuate from year to year, but based on these records you should be able to estimate what your expenses will be moving forward.

How to Choose the Right Commercial Property Maintenance Service Provider

If you decide to hire a commercial property maintenance service provider, take the time to find the right one. A quality company will be able to manage most of these tasks on their own with minimal supervision, allowing you more time to focus on other areas of your business.

Here are a few things to look for in a commercial property maintenance service provider:

 

• Cost: There are plenty of companies that are affordable but don’t offer quality service. There are also providers that charge a steep price but don’t live up to it. Try to find a company that fits your budget and delivers the results you’re looking for.

 

• What Type of Equipment Do They Use?: Is their equipment old and out-of-date or is it high-end? This will tell you a lot about the kind of company they are.

 

• What Protocols/Systems Do They Use?: If you want to be completely hands-off you can simply make the tenant responsible for all repairs and maintenance. This can be done by having them sign a NNN or absolute NNN lease. Some modified gross leases may also include this stipulation as well.

• Get Referrals: Ask other property owners what service providers they use. If someone is willing to recommend a company chances are they’ll do a good job for you.

The Best Commercial Property Software Maintenance Tools

With so much to keep track of you need a way to stay organized and increase efficiency. Luckily, there are a number of software tools to help with that.

Here are some of the most popular applications available:

 

• Hippo CMMS: This web-based maintenance software helps track work orders, preventive maintenance, and equipment. It’s user-friendly and easy to set-up.

 

• Asset Essentials: Manage all your maintenance tasks from this cloud-based system. Organize your work orders, manage your assets, and much more.

 

• Blue Folder: This tool is all about increasing efficiency. It includes asset tracking, work order management, and scheduling tools.

• Upkeep: Use this software to create work orders, get notifications when jobs are complete, and receive alerts about any issues.

• eWork Order CMMS Schedule all your building and equipment maintenance with this web-based solution. Track and manage all your tasks and assets from one place.

If you own a larger and more complex property then using the tools will simplify your building management and make sure nothing is overlooked.

Conclusion

Commercial property maintenance is a major consideration for any real estate investor. If you’re going to purchase a property you need to know what your responsibilities will be and have a plan for how you’ll maintain all your assets.

This is one of the reasons why a commercial real estate broker is such a valuable asset during the buying process. An experienced broker will help you conduct your due diligence and bring to light any maintenance costs you might not have been aware of. This will help you evaluate real estate more effectively and avoid properties that are too expensive to maintain.

The best commercial real estate deals are often the ones that aren’t listed on the open market. If you drive by a commercial property that you feel would be the perfect fit for your portfolio there’s no harm in reaching out to the owner to see if they’d be willing to sell. And since you’re the only one bidding on it you may end up getting it for below market value.

Want to learn how to find commercial property owners, even if their property isn’t listed for sale? It will take some research but there are a few ways to track down an owner.

We’ve compiled all the different strategies available to help you get in contact with owners and potentially secure your next great commercial real estate deal.

County Tax Assessors

A great place to start is by searching for the property on your local tax assessor website. Pretty much every county should have a commercial property owners database, and searching these databases is completely free.

Follow these steps to learn how to find a property owner by address:

1. Go online and perform a search for something along the lines of “property tax records for [insert county name].

2. The tax assessor page for your county should come up. Open it.

3. Every county website will be a bit different, but there should be an option to perform a search. Look for a link labeled “Search Property Records” or “Search Appraisals” and open it.

4. Enter the address of the property you’re interested in. If you don’t have the address there will likely be the option to also search by business name. Enter the information you have on the property and perform the search.

5. Review the results and click on the property you’re interested in.

This process is fairly easy and can be done for virtually any property you might find. The problem is that the amount of information you’ll receive will be fairly limited. In most cases, you’ll just get the property’s most recent assessment value and the name of the LLC that owns it. And these records never list a phone number.

So, while this is a good first step in your search if you want to find a property owner by name you’ll need to look into some other options.

Search Property Owner Public Records

In addition to your local tax assessor, you can also get commercial property owner information from a county recorder/clerk. To access this data, go to NETROnline and select the state and county you’re looking for. You’ll then be presented with the various types of public records they have available.

Just like the tax assessor websites, each county will be different. Some sites are easy to navigate, while others are more difficult. However, performing a search should more or less be similar to the procedure we described above for tax assessor websites.

In addition to property owner searches, you’ll also have access to other information such as bills of sale, deeds of trust, mortgages, easements, tax liens, and more. However, in most cases, this data will need to be paid for.

Some sites will allow you to pay for just the one document you need, while others will force you to pay for a collection of documents even if you only need one or two. So, just keep that in mind before performing your search.

Title Company

Another way to find the owner of a commercial property is to contact a local title company and ask them to provide you with a focused real estate marketing (FARM) list. These lists will include some or all of the following information for a property:

• Owner name and contact information

• Address

• Property characteristics

• Neighboring businesses

• Comparable sales

• Transaction history

• Local demographics

Some lists will be free while others you’ll have to pay for. If you need information that’s not included in a standard list you’ll more than likely have to pay for it.

The main benefit is that the title company does all the research for you, which can save a significant amount of time. However, while these lists can provide you with some valuable information, they’re static. This means they’re not updated once they’re provided to you, so depending on how often you need real estate data you may have to request additional lists as time goes by.

Reonomy

Reonomy is a provider of property intelligence and CRE insights. They offer a powerful search tool that will help you gather real property owner information and contact details.

One of the best features of Reonomy is just how many search filters they have. While an exact address is still the best way to track down a property, there are a number of options to help you find the property you’re looking for even if you have limited information on it.

You can search for a property by:

• Address

• Neighborhood

• Zipcode

• City

• Asset type

• Zoning

• Lot size

• Sales history

• Debt history

…and more.

After you perform your search you’ll be given a list of results based on your criteria. Results are plotted on a map to help you identify the right one. Review the list and find the property you’re interested in. Once you click on it you’ll be given access to a wealth of information, including building-level specs, sales history, mortgage history, and most importantly, ownership information.

The owner is usually listed as an LLC, but Reonomy lets you dig deeper. They often have information on the people associated with the LLC, and their contact information, to help you get in touch with the owners.

CoStar

CoStar is a commercial real estate information company that provides a number of services, including market overviews, analytics, and tenant data. Their public records service allows you to search their database of 38 million commercial real estate properties in order to find owner information on properties all around the world.

The company offers a similar search feature to Reonomy, with a number of filters to help you find a specific property. Simply enter your criteria, perform your search, and review the results.

Perhaps the most impressive feature of this service is CoStar’s detailed ownership information. Depending on the property, you’ll find information on the owner, the manager, building tenants, and more.

When it comes to the owner, in addition to emails and phone numbers they’re also able to provide information on past transactions and other properties in their portfolio.

ProspectNow

ProspectNow offers one of the most complete databases of US commercial property owners. These records are updated daily with the latest available data gathered from trusted public and private sources, as well as their own internal data.

Their 150+ advanced search filters include:

• Address

• Intersection

• Zipcode

• City

• Property type

• Lot size

• Preforeclosures

…and more.

Property results are displayed on a map to allow you to easily identify the correct lot. Simply click on a property to get owner contact information, tenant information, the history of the property, and other important data.

The platform also lets you search for businesses, which is another potential way to track down building owners. Search for businesses based on a business name, number of employees, revenue, and owner status.

PropertyShark

PropertyShark is a real estate data provider based in New York City. They offer a search platform similar to others we’ve discussed here, but they’re primarily focused on the New York area (although they do have data for commercial properties across the US).

Using PropertyShark you’ll be able to find a wide range of data, including:

• Owner information

• Property details (age, size, zoning, etc.)

• Sales history

• Building permits

Their database is constantly growing and they frequently update it with the latest property and ownership details. This includes owner portfolios, mortgages, deeds, and other information.

PropertyShark advertises that they have 100% coverage in New York City. So, if you’re trying to find the owner of a commercial real estate building in NYC this might be your best option.

DataMasters

DataMasters sells commercial property owner lists for counties all across the United States. Their database includes:

• Over 13 million commercial properties

• About 7 million property owners

• 148,000 apartment complexes

• Over 3 million active commercial loans

This service is different from the others we’ve talked about so far in that instead of searching online for a specific property you’ll be buying a mailing list for an entire area. The service is often used by direct marketers, but it can also be a valuable resource for commercial real estate investors as well.

For example, if you want owner information for an entire neighborhood this is a quick and easy way to get it. Keep in mind though that they collect their data from county tax assessors, so the ownership information you receive is usually limited.

Partner with a Commercial Real Estate Broker

When trying to find commercial property owners, your best bet is often to reach out to a commercial real estate broker.

These professionals have a wealth of contacts and resources at their disposal. They’re extremely connected in their local community and can easily track down the owner of virtually any property you’re interested in. But their services don’t end there.

A commercial real estate broker will reach out to the owner on your behalf in order to see if they’re willing to sell. They’ll also help you place a value on the property, organize any inspections that are required, and assist you throughout the negotiation process.

For these and other reasons, a commercial real estate broker is a valuable asset to any investor.

Conclusion

As you can see, there are a number of different ways to go about finding the owner of a commercial real estate building.

If you’re just looking for the name of the owner or managing company, the information provided by your local tax assessor or public recorder should suffice. These sites are difficult to navigate, but the information is free.

If you’re looking for contact details, along with more in-depth information like sales history, owner portfolios, and tenants, try one of the more advanced search tools like Reonomy, CoStar, or Prospect Now. These tools charge a fee, but the insights they provide far exceed anything you’ll find in your local public records.

And if you’re too busy to do the research yourself and want some assistance throughout the buying process, partner with a commercial real estate broker you trust. Not only will they help you find the owner of the property you’re interested in, but they’ll usually negotiate a better price than you’d get if you pursued the opportunity by yourself.

When you’re investing in a commercial property, understanding the lease agreements is just as important as reviewing the P&L statements.

The types of leases that are in place with the existing tenants have a big impact on your responsibilities moving forward. This could make the property more or less appealing to you, depending on your goals and the type of business model you want to use.

There are seven different commercial lease types that you’ll encounter. Knowing how each one works will help you better evaluate potential properties. It will also allow you to negotiate more favorable leases when you bring in new tenants.

Understanding Commercial Leases

A commercial lease agreement is a contract between you and your tenant. It outlines the responsibilities of both parties, which vary widely from one type of lease to another.

Commercial leases differ from residential leases in a number of ways, including:

• They provide few legal protections to tenants, as it’s assumed business owners are more knowledgeable than residential renters.

• All the terms of the lease are negotiable.

• They generally have much longer terms, usually several years.

Some common commercial lease terms are:

• The amount of rent to be paid each month by the tenant.

• The amount the landlord can increase the rent each year.

• The length of the lease.

• Who is responsible for paying additional expenses (property taxes, insurance, utilities, etc.)?

• Who is responsible for maintenance and repairs?

As with any kind of lease, a commercial lease should also include terms for either party breaking the lease and consequences for ending the lease prematurely.

Now that you have a solid understanding of what a commercial lease is and how it works, let’s go over the seven types of commercial real estate leases you’re likely to run into when investing in properties.

Gross Lease/Full Service Lease

With a gross lease (also known as a full-service lease), the landlord assumes all or most of the expenses. This may include property taxes, insurance, utilities, repairs, and maintenance. All of these expenses come out of the rent, meaning the tenant only has to make one lump sum payment each month.

Tenants often prefer this type of lease, due to its simplicity. They’re only responsible for paying the rent and the landlord takes care of everything else. This allows the tenant to focus on running their business and means they don’t have to worry about managing the building.

The downside of this type of agreement for tenants is that they have little or no control over the look of the building, and if something needs to get fixed they’re completely dependent on the landlord. Also, because the landlord is responsible for all the expenses the base rent is usually higher compared to other types of leases.

For landlords, a gross lease usually means more work. It might be preferable for someone who wants to be more hands-on and likes to have control over how the building is run. But if you’re looking for a passive investment this isn’t the lease for you.

Single Net Lease (N Lease)

A net lease is the most common type of commercial lease. With these leases, the tenant pays for some or all of the three nets:

• Property taxes

• Insurance

• Maintenance and repairs

In addition to these expenses (and their rent), tenants also usually pay for utilities and janitorial services.

The first type of net lease is the single net lease, where the tenant is responsible for paying a portion (or all) of the property taxes. The landlord is then in charge of paying for the property insurance and any repair and maintenance expenses that arise.

A landlord may opt for this agreement to save money on property taxes and to ensure they have money to pay their taxes on time. Besides this though, there are few advantages to the landlord and they’re still required to manage most of the day-to-day responsibilities of the building.

Double Net Lease (NN Lease)

A double net lease requires the tenant to pay for a portion (or all) of both the property taxes and insurance. The landlord is then responsible for any expenses associated with maintenance and repairs.

This commercial lease type is more common in multi-tenant buildings. In this case, the tenants contribute to the property taxes and insurance, and in return, the landlord will maintain the building and take care of any repairs that need to be done.

In a multi-tenant building, the portion a tenant pays for property taxes and insurance is usually decided based on the amount of square footage they’re leasing. For example, if a tenant rents 20% of a building they’d be expected to pay 20% of the property taxes and insurance.

Triple Net Lease (NNN Lease)

Since this is the most popular type of lease, a common question among investors is “what is a triple net commercial lease?” With a triple net lease, the tenant pays for a portion (or all) of the property taxes, insurance, and repairs and maintenance.

This type of lease provides a number of benefits to landlords. Because tenants are responsible for virtually all the expenses this agreement is ideal for more hands-off investors. For example, if a window breaks the tenant is responsible for fixing it and paying for any repair costs.

There are some benefits to the tenant as well. While they have more responsibilities they also have more freedom. Generally, a triple net lease gives tenants the ability to make changes to the building as they see fit. They also aren’t dependant on the landlord to take care of any urgent repairs. And because they’re responsible for more costs their base rent is usually lower.

Absolute Triple Net Lease/Bondable Lease

An absolute triple net lease (also known as a bondable lease) is essentially the exact opposite of a gross lease. In this arrangement, the tenant is responsible for all costs associated with the property and they take on every imaginable risk.

For example, if the building were to be destroyed due to a natural disaster the tenant would be responsible for all the costs associated with rebuilding it. On top of that, they’d still have to pay the landlord’s rent while the building is being rebuilt.

This is the least common commercial lease type, as few tenants are willing to take on this level of risk. While this lease essentially allows them to own a building without buying it, they’re responsible for all the risk and don’t get to benefit from gaining equity in the property.

Modified Gross Lease

A modified gross lease is essentially a compromise between a gross lease and a net lease. It’s similar to a gross lease in that the tenant pays all their expenses in one lump sum to the landlord. However, what’s included in their payment is negotiable.

Their rent could include any or all of the three nets. Utilities and janitorial services are typically excluded and are paid for separately by the tenant. Essentially, it maintains the simplicity of the gross lease while giving more flexibility when it comes to the responsibilities of the landlord and the tenant.

With a modified gross lease, the cost to the tenant is fixed throughout the entire term of the lease. This means if any of the costs the tenant is responsible for (property taxes, insurance, etc.) go up, their rent remains the same. Of course, if any of these costs go down the landlord enjoys the savings.

Percentage Lease

In this agreement, the tenant is expected to pay the landlord a percentage of their gross income, on top of their rent and any other expenses they’re responsible for.

The percentage paid by the tenant is typically around 7%, but it’s completely negotiable and fluctuates from one lease to another. There are also a number of different methods used to calculate the percentage rent and it’s not always simply a percentage of gross income.

Malls and shopping centers often utilize percentage leases, and they’re quite common when dealing with restaurants and retail stores.

A percentage lease may also be used with a start-up business that can’t guarantee its sales. In this case, the base rent is set low but the landlord has the chance to greatly increase their earnings if the start-up is successful.

Work with an Expert to Help You Evaluate Potential Leases

As you can see, commercial leases take on many different forms. This is one of the reasons why a commercial real estate broker is such a valuable asset. They can help you evaluate the leases of any potential investments and ensure you’re fully aware of all your responsibilities before purchasing a property.

If your business is looking for a new space, one of the first decisions you’ll have to make is whether you’re going to lease or buy.

When it comes to leasing vs buying commercial property, there’s no definitive right answer. It really depends on the needs of your business and your goals. However, the decision will have a big impact on your company in both the short and long term, so it’s important to do your research to determine which option is right for you.

Keep reading for everything you need to know about leasing and buying commercial real estate in 2021.

1. How Does Leasing Commercial Real Estate Work?

When you lease a commercial space you’re renting it from a landlord. When you sign a lease agreement you have the right to use the property for your business for however long is specified in the lease. In exchange, you’ll pay the landlord a predetermined amount every month.

A lease agreement also outlines the roles and responsibilities of both the tenant and the landlord. The responsibilities of both parties will depend on the type of lease being used.

There are five common types of commercial leases:

 

1. Gross/Full Service Lease: The landlord takes full responsibility for the property, including paying for property taxes, insurance, and utilities, and managing maintenance and repairs. These expenses come out of the tenant’s rent, which often results in a higher base rent than most other types of leases.

 

2. Single Net Lease (N Lease): The tenant pays for utilities and a portion of the property taxes. The landlord is responsible for all other expenses, including insurance and maintenance.

 

3. Double Net Lease (NN Lease): The tenant pays for utilities, plus a share of the property taxes and insurance. The landlord is responsible for any maintenance and repair costs.

 

4. Triple Net Lease (NNN Lease): The tenant is responsible for the three “nets”: property taxes, insurance, and maintenance. Tenants must also pay for their own utilities. Because tenants are responsible for the majority of the building expenses base rents for NNN leases are usually lower.

5. Modified Gross Lease: This type of lease acts as a compromise between a gross lease and a net lease. Tenants pay all their expenses in one lump sum to the landlord. This can include any of the “nets,” plus utilities. The costs that the tenant is responsible for will depend on the lease.

As you can see, the nature of a commercial lease can differ wildly from one agreement to another. If you’re leasing a commercial property make sure to review the agreement thoroughly so you have a complete understanding of what you’re signing.

2. Why Do Companies Choose to Buy Commercial Property?

There are a number of reasons why a business might choose to purchase a commercial property instead of leasing:

Here are a few of the benefits of working with a broker:

 

• They Want to Invest While there are never any guarantees, buying commercial real estate is often a good investment.

 

• They Have a Large Amount of Capital: Once a business outgrows the start-up phase and has a lot of capital on hand it starts to make more sense to buy rather than lease.

 

• Their Business Needs Have Stabilized: If a business is no longer growing rapidly, or they have a solid understanding of what their needs will be in five or ten years, it’s easier to lay down roots.

 

• They No Longer Want to Deal with a Landlord: Even the most favorable leases still come with some restrictions. At a certain point, a company may decide it’s in their best interest to free themselves from a landlord so they have more control over their space.

 

• They Have the Resources to Manage a Property: Looking after a property is a job in itself. Many smaller companies only have the capacity to focus on their business. But once a company has enough resources at its disposal managing a property becomes a lot easier.

If any or all of these reasons apply to your business then it might be time to consider buying. However, there is no hard and fast rule about when to buy and when to sell. Investing in commercial real estate is a major decision and it needs to make sense for your business.

3. Pros and Cons of Leasing Commercial Property

Lots of companies prefer the benefits of leasing commercial property, but that doesn’t mean there aren’t any drawbacks.

Here’s what you should know before you decide to lease:

Pros

 

• You Build Equity: Every mortgage payment you make helps grow your equity in the property. This means your payments are working towards something, not just going to a landlord.

 

• It’s an Investment: When the value of your property increases your business will benefit. If you choose to sell the property down the road it could lead to a significant capital gain.

 

• No Landlord: You don’t have to live under someone else’s rules. This means you have complete control over the property and can make whatever alterations to it that you like.

 

• You Can Rent it Out: If you have extra space you can rent it out to another business. This will give you an additional source of revenue, which you can use to pay off your commercial real estate loan.

• Tax Benefits: When you own a property you’re able to write off your interest expenses, asset depreciation, and any other non-loan related expenses.

Cons

 

• Upfront Costs: The average downpayment for commercial real estate is 20% – 30%. Depending on the property, that could be hundreds of thousands of dollars. You’ll also have due diligence fees and closing fees on top of that.

 

• More Liabilities: If anyone is hurt on your property you’re liable for it. This includes any accidents that occur as a result of your tenants’ businesses as well. So, you’ll have to pay for liability insurance to protect yourself.

 

• Less Flexibility: Most commercial real estate loans last at least 15 years, which makes it more difficult to move if you outgrow the location. Your capital is also tied up in the property, which prevents you from investing that money into the business.

4. Costs of Leasing Commercial Property

As we’ve discussed, the costs associated with leasing can vary depending on the agreement. The lease payment is the only guaranteed cost, while other expenses may be included. It’s also possible that additional costs could be built into the lease payment.

With that said, here are some of the expenses you can expect when leasing:

 

• Lease Payment: On average, you’ll pay anywhere from $10 – $25 per square foot to lease a commercial space.

 

• Property Taxes: This fluctuates from lease to lease. You might have to pay all or just a portion of the total amount. A common practice is for the landlord to pay the property taxes for the first year, then have the tenant pay all or a portion of the increase in the following years.

 

• Property Insurance: You may be expected to pay some or all of the commercial property insurance. This insurance is for the structure itself and doesn’t cover your inventory, equipment, and any other assets you may have in the building. You’ll have to purchase your own insurance for those items.

 

• Maintenance and Repairs: Depending on your lease you might also have to pay for some or all of the maintenance and repair costs.

 

• Utilities: In most cases, you’ll be responsible for your own utilities. You can expect to pay around $2.14 per square foot.

5. Costs of Owning a Commercial Property

Just like leasing, there are a number of costs associated with owning a commercial property. These include:

 

• Downpayment: A higher down payment is usually required for a commercial property than a home. The lowest you can expect is around 10%, but on average you’ll pay 20% – 30%.

 

• Closing Costs: This includes underwriting fees, credit checks, appraisals, and inspections, and can cost as much as $20,000.

 

• Commercial Real Estate Loan Payment: This will depend on the size of your loan and your interest rate. Use our commercial real estate loan calculator to determine what type of loan you might be eligible for.

 

• Property Taxes: The average property tax rate in Washington State is 0.930%.

 

• Property Insurance: The average cost of property insurance for businesses is $742 per year.

• Maintenance and Repairs: According to a recent survey, building owners spend an average of $2.15 per square foot on maintenance and repairs.

• Utilities: As stated above, you can expect to pay around $2.14 per square foot for utilities.

6. Conclusion

So, is it better to lease or buy commercial property? It’s really going to depend on your business and situation. You can always consult with a commercial real estate broker to get expert advice and guidance.

Selling commercial real estate is much more complicated than selling a residential property. There are so many other variables, including revenue, expenses, leases, vacancy, and more that potential investors will need to review before they feel comfortable closing a deal.

And because commercial properties are more of a niche investment, finding buyers is also more difficult. This is especially true if you don’t have the necessary contacts and connections.

If you’re currently selling a piece of commercial real estate, or you’re thinking about it, then you likely have a lot of questions.

Refer to this guide for everything you need to know and learn how to sell commercial property in 2021.

The Best Ways to Sell Commercial Property

There are a number of different ways you can go about selling commercial real estate. That being said, here are the three most common approaches that are used by sellers:

Partner with a Commercial Real Estate Broker

For the vast majority of people, working with a commercial real estate broker will be the best strategy. These industry experts know how to market a property and find buyers. And if you’re new to the process of selling commercial real estate they’ll be able to guide you through each step.

Here are a few of the benefits of working with a broker:

 

• Marketing: Brokers will help coordinate professional photography for your property and get you listed online in all the best places. They’ll also help you develop a compelling offering memorandum that will attract the right buyers.

 

• Industry Contacts: A good broker will have contacts in the real estate industry. They’ll be able to connect you with buyers and investors who are interested in your property.

 

• Communicating With Buyers You likely have more going on in your life than just selling a property. A broker will handle all communications, which saves you a considerable amount of time.

 

• NegotiationsReal estate negotiations can be a bit intimidating, especially if you’ve never gone through them before. Brokers will assist you with this and ensure you get a favorable return on your investment.

As you can see, a good commercial real estate broker is a valuable asset. Just do your due diligence on anyone you work with to ensure they’re a good fit for you and your property.

Sell a Commercial Property Online

There are plenty of online platforms that you can list your property on without the help of a commercial real estate broker. These include:

 

• LoopNet

 

• Showcase

 

• Ten-X Commercial

 

• CREXi

 

• Commercial Exchange

Since you’re selling the property yourself you’ll need to arrange for photography, create the listings, handle all the inquiries you receive, and negotiate on your own behalf.

Network with People in the Industry

If you have contacts in the real estate industry, or you know people who might be interested in your property, you might be able to find qualified buyers on your own.

Of course, for most sellers this will be difficult, especially if you’re selling a niche property. There will likely only be a select few investors who have both the interest and means to purchase your property, so finding them on your own is a tall task.

This is why a commercial real estate broker is such a valuable asset. They’ll have connections most others don’t and know how to find the right buyer for your property.

2. Selling Commercial Property: Step by Step

As we’ve mentioned, selling commercial real estate can be a complicated process. So, we’ve attempted to simplify things by creating a step-by-step guide that will work for most sellers.

 

1.  Find a commercial real estate broker you trust. While you can sell your property on your own it will be much easier with the help of a broker.

 

2.  Before meeting with your broker, prepare all the financial documents for your property. This includes your loan balance, P&L statements, tax returns, lease agreements, historical maintenance records, and other important information.

 

3.  Have your broker analyze your property and advise you of the price they feel it should be listed at.

 

4.  Work with your broker to create a compelling offering memorandum.

 

5. Have your broker list your property on all the major online listings.

 

6.  At this point, your broker will reach out to their contacts and start circulating your offering memorandum amongst investors they feel will be interested.

 

7. When an offer is accepted the study period begins. This typically lasts 60 – 90 days and gives the buyer a chance to review financials, loan terms, zoning, etc.

 

8. After the study period is over a contract is submitted and agreed to by both parties. Have your broker review the final contract to ensure everything is in order.

 

9.  Choose a closing date (this is typically 30 days after the contract is agreed upon).

 

10. The buyer deposits funds to your title company of choice.

 

11. The title company reviews the contract and creates a HUD1.

 

12. On the closing day, review and sign all documents with your buyer to finalize the sale.

The main benefit of using a broker is that they’ll take care of most of these steps for you. You’ll hand over all of your property’s information and they’ll handle the rest. They’ll also be there to ensure no details are overlooked.

3. Find Buyers Off Market

Oftentimes, simply posting a commercial property online isn’t enough. If you really want to find the right buyer you may need to go off market and actually look for them yourself.

Here are a few tips to find and identify investors for your property:

 

• Tell Family and Friends That You’re Selling: Even if you don’t think your friends and family will be interested it’s still worth letting them know that you’re selling. They might know someone who’s a potential buyer, or they might tell someone who knows someone, and so on. So spread the word, because you just never know.

 

• Contact Developers: Commercial real estate developers are always looking for new properties. They’re also extremely connected. Do some research to see who the leading real estate developers are in your local area and try to get your offering memorandum in front of them.

 

• Contact Commercial Real Estate Investment Firms: There are a number of investment firms that specialize in commercial real estate. Reach out to some to see if they’d be interested in reviewing your offering memorandum. Don’t just limit yourself to local firms. National and even international investors may be interested in the property if it suits their needs.

 

• Partner with a Commercial Real Estate Broker: It’s not always easy getting in contact with developers and investment firms if you’re not in the industry. But a good broker already has these contacts and will likely know exactly who to reach out to to get your property sold.

4. How Much Does it Cost to Sell Commercial Property?

While selling a commercial property can be a very profitable venture, there are a few costs you should be aware of:

 

• Inspections: Before you sell you may decide to perform some inspections to uncover any unknown issues. On average, this costs $0.1 per square foot.

 

• Repairs: If you uncover any problems, or you’re aware of anything that might decrease the value of the property, you’ll likely want to get it repaired before selling. The cost can vary widely depending on the job. Make sure to get bids from several different contractors before making a decision.

 

• Your Commercial Real Estate Broker’s Fees: These are typically 2% to 4% of the final sale price. However, a good broker will more than make up for this by finding you a better deal than you would have gotten if you sold the property on your own. They’ll also save you time throughout the selling process and prevent you from making costly mistakes.

 

• Marketing Expenses: This includes signs, photography, brochures, listings, ads, and more. The price can range anywhere from a few hundred to a few thousand dollars. Your real estate broker will likely have a marketing plan in place and can advise you on the cost.

 

• Property Staging: This can cost as little as a few hundred dollars and helps make a positive impression on potential buyers when they tour the property.

 

• Title Clearing: It’s a good idea to hire a title clearing service to ensure there aren’t any outstanding issues with the title. This can usually be done for under $1000.

 

• Transfer Taxes: Most states will tax you every time you sell a piece of real estate. Make sure to check with your state or county to see what the local regulations are.

5. How to Sell Commercial Property Without a Broker

We’ve covered the many benefits provided by using a commercial real estate broker to sell your property. For most people, selling a commercial property on their own is not a good idea. Not only is it a lot more work, but you may end up selling for less than you should have and could overlook important details that will lead to even further financial losses.

That being said, here’s how to sell a commercial property by owner:

 

1. Hire an inspector to review the property and repair any issues you find.

 

2. Hire an appraiser. If you’re not going to work with a broker do yourself a favor and speak with an appraiser to ensure you’re listing your property at the right price.

 

3. Post your property online on one of the sites listed above.

 

4. Pay for online advertising if you can afford it.

 

5. Create a website for your property if you have the time and can afford it.

 

6. Use social media and your friends and family to spread the word.

 

7.  Prepare the property for showings. At the very least it should be cleaned and made to look presentable.

 

8.  If you receive an offer you’ll need to negotiate on your own and come up with a price that both you and the buyer agree on.

 

9.  Hire a real estate attorney to create a contract and ensure the sale complies with local laws

 

10.  Decide on a closing date.

 

11. Finalize the sale with the buyer.

While it’s possible to sell a commercial property by yourself, it can be extremely time-consuming and there are a number of details you’ll need to pay attention to. If you’re not 100% confident that you can manage all this successfully then reach out to some brokers and find one that’s a good fit.

6. Conclusion

Selling a commercial property may seem overwhelming at first, but it doesn’t have to be. If you do your homework beforehand, partner with the right commercial real estate broker, and follow the steps above you shouldn’t have any trouble finding the perfect buyer for your property.