Unfair Advantage: Why Commercial Property Is Easier to Manage Than Residential Property

Whether you are a complete novice looking to get into real estate before prices begin to rise again, or an experienced investor who is accustomed to dealing with residential properties there are many advantages to investing in good retail space, provided you know what you are doing. While it may be similar to larger residential properties in some ways, when it comes to retail the main difference is all in the leases. Once you understand how a retail lease is structured and the different leases available you can make a profitable investment often with much less management then a typical residential property.

Gross lease
Not recommended for a novice investor, in a gross lease the landlord is the one paying all the properties expenses. This includes landscaping, maintenance, taxes, insurance and possibly more depending on the property and the tenant. Theoretically this extra cost is offset by charging a much higher rental price, while this may attract many new tenants who are not as experienced at running a business and dealing with all the myriad costs, the gross lease can be dangerous for an inexperienced investor who cannot accurately project what a buildings’ operating costs will actually be.

Modified Gross Lease
A modified gross lease features one or more special expenses, known as pass-through expenses that are paid for by the tenant. This is typical for certain types of business tenants with specialized needs that may be more easily tracked by the tenant. While this type of leasing arrangement may sound more appealing than the gross lease, it’s nothing compared to the Net Lease.

Net Lease
In the net lease the tenant pays all of the properties expenses, including maintenance, repairs, and modifications. While this may sound too good to be true, or even a little unfair to the tenant, many business owners gladly prefer this type of lease. The advantage of this lease for a tenant who is an experienced business owner is that they have much more control of their business in terms of appearance, signage, layout, and any specialized equipment needed. The only expense covered by the landlord is maintenance of any common area, although if there is only one tenant this exception may not apply. Another exception is the different type of net lease; there are three types of net leases normally used.

Single Net
Much closer to the gross lease, in the single net lease the tenant is only responsible for their rent and paying the property taxes. Any other expenses, including expenses to modify the space for tenant use, are paid for by the landlord.

Double Net
The double net, sometimes abbreviated as NN, is the next level from the single net, or N, lease. In a double net lease the tenant pays rent and property tax, plus the property insurance.

Triple Net
The triple net, or NNN lease is the extreme example of a net lease. In this popular lease the tenant is responsible for paying all property expenses. To a new investor or one used to dealing only with residential property this may sound too good to b true, however, this type of lease is becoming increasingly popular and is one, although not the only reason to give serious consideration to investing in a solid piece of commercial real estate.

S Christopher Penn has been involved in Real Estate since 2003 and has been writing articles since 2010. To see his newest website go to http://alaskaaircreditcard.org/ where he helps people find travel reward cards like the southwest credit card