In recent times in the U.S., some commercial real estate investments took a downturn. With people unable to work, shop, and travel as freely, there was a decline in specific commercial spaces’ demand, use, and value.
But as the country opens up, experts predict the economy will grow by more than 6% this year. This means investors can now take advantage of the emerging commercial real estate boom.
But to make successful commercial real estate investments, you need to pay attention to the lease structure…
There Are Two Types of Commercial Real Estate Leases
There are really only two main commercial real estate leases:
1. Gross Leases
2. Net Leases
Each has advantages, and one may be more beneficial to your long-term investment plans than the other. Below, we discuss their differences and how to decide which one is better for you.
What is a Gross Lease?
In investment properties, a gross lease requires a tenant to pay an agreed-upon ‘all-in’ rent in exchange for the exclusive use of a commercial property.
For example, a tenant may be required to pay a gross lease of $5,000 per month. They won’t have to worry about sudden additional costs, such as maintenance, utilities, and insurance with this payment. Most of these operating expenses become the landlord’s responsibility.
A gross lease in commercial real estate is beneficial for both landlords and tenants in certain situations. For landlords, a gross lease is the most practical way of charging tenants for using a property instead of charging them by their proportional share of expenses.
For tenants, a gross lease can make budgeting easier because the price of renting a commercial space does not fluctuate depending on the cost of use, maintenance, or repairs. Instead, they pay a fixed, predetermined rate every month while the landlord assumes responsibility for the building.
What is a Net Lease?
The opposite of gross lease in many ways, a net lease is an agreement where tenants pay a portion of all the costs of using your commercial property. This includes taxes, insurance, and maintenance fees, in addition to rent.
The predetermined cost of rent in a net lease is typically lower than that in a gross lease, but the tenant will be responsible for their portion of all the utilities, repairs, and other expenses associated with using the property.
These additional expenses make up different types of net leases, from single net leases to absolute net leases. The most common, though, are triple net leases. This type of net lease requires tenants to pay property taxes, building insurance, and maintenance expenses on top of the agreed-upon rent.
Picking the Right Lease Structure for Your Needs
Knowledge of lease structures will help you assess the risks of your investments and tenants. Both of these types of leases can be good for investors, depending on the type of commercial real estate you want to lease and what your tenants will be using it for.
Brisky Net Lease offers real estate investment services and is composed of industry experts ready to guide you through the process.
Make Better Investment Decisions with Us.