US News and World Report’s Kristin McFarland recently released an article highlighting how real estate could prove to be a better investment than your typical investment in the stock market. Given the intense volatility in the world’s stock markets this past week, these words ring truer than ever. McFarland notes that you should do loads of research to ensure that the prospective property is right for you. If done right, investing in real estate can prove to be a fantastic choice. To make sure that you are making an informed decision, you will want to be well-versed in the vernacular of commercial real estate. Here are nine terms you should know before you invest.
- Real Estate Broker: These are agents boasting expertise in the process of leasing. These brokers should be licensed by the state and help guide your party through each component of the lease transaction.
- Usable Square Footage: This refers to the square footage, as agreed to by the lease, that will be occupied or utilized by just the tenant. This includes the area for storage, bedrooms, private restrooms. Don’t confuse this with Rentable Square Footage which accounts for the area to be exclusively used by the tenant, as well as a portion of the common space.
- Gross Lease: In a Gross Lease, the tenant is expected to cover a flat price that covers landlord-paid expenses. Such expenses include property maintenance, taxes, insurance, utilities, and more With this type of lease, it is much easier for the tenant to predict their future expenditures as their rent remains constant.
- Net Lease: Contrary to the Gross variety, with a Net Lease tenants are expected to cover operating costs including, but not limited to, utilities, maintenance, and more.
- Common Area Maintenance: This refers to the extra rent that is paid to cover the maintenance of common areas that are shared by the property’s tenants. Depending on the location of your property, this can include the cost of snow-maintenance, insurance, landscaping, lighting, and more.
- Letter of Intent: Occurring between the landlord and tenant, this refers to the initial agreement between to move the subsequent phase of the negotiation. While informal, you should certainly speak to a lawyer before signing a letter of intent.
- Escalation Clause: Expenses paid by the landlord such as taxes, insurance or maintenance often changes from month to month. The Escalation Clause allows landlords to increase future rent payments due to an increase in these aforementioned expenses.
- Full-Service Rent: As suggested by the name, full-service rent covers taxes and operating expenses for the initial year of the agreement. It should be noted that the tenant is often responsible for an expansion in operating costs beyond the base year number.
- Non-Compete Clause: This forbids a landlord from entering into a lease agreement for a property on the same development with a tenant’s direct competitor. This clause is often included by the request of a tenant to ensure the safety of their long-term investment and is most commonly found with tenants that are dependent on walk-in traffic.