Commercial & Investment Properties Types of Leases Flashcards
In a gross lease, the landlord pays…
all expenses. These include property taxes, insurance and maintenance.
The residential lease is a common example of a…
gross lease.
In a net lease, the tenant pays…
some or all of the expenses.
In a triple net lease, the tenant pays…
all of the expenses in addition to the rent.
A net lease, in particular a triple net lease, is commonly used by…
commercial tenants.
A large company may have a triple net lease and rent an entire office building.
Percentage Lease is a lease of property in which the rent is based upon…
the percentage of the volume of sales made upon the leased premises, usually provides for minimal rent.
A percentage lease is typically used with…
retail tenants.
A ground lease is a…
long-term lease of unimproved land, usually for construction purposes
For example, a lessee may be given a 99-year ground lease for a large vacant property. The lessee will build a large multi-family building on the property.
At the end of the 99-year lease, the lessor (the original land owner) will take back the land and any improvements on the land (including the multi-family building).
A ground lease is also known as a…
land lease.
A loft lease is for the…
rental of floor space this is not generally divided into rooms.
A loft lease is typically for an…
open, unfinished space.
A graduated lease is a lease in which the…
rent changes from period to period over the lease term.
The graduated lease contract specifies the change in…
rental amount, which is usually an increase in stair-step fashion.
An escalation clause allows landlords to…
raise rents during the term of the lease.
Lease escalation clauses call for the…
increased costs to the tenant for different reasons at specified times during the lease term. These clauses protect the property owner against increases during the lease term.
A use clause defines how the…
tenant can and cannot use the space.
Usable square footage is the area contained within a building that is…
actually occupied by a commercial tenant.
Usable space typically does not include…
elevators, stairs, mechanical spaces, etc..
Rentable square footage is the…
total area of a space, some of which cannot be used.
Rentable square footage equals the…
entire space, including the usable square footage and the tenant’s pro rata share of the building’s common areas, such as the lobby, hallways, and restrooms.
The difference between the rentable and usable area in a commercial space is known as…
the loss factor.
A pro forma is an…
accounting statement that forecasts income and expenses for a period of time, typically five or more years.
Pro forma statements are typically used by…
investors to estimate their rate of return for a particular property.
Leverage is the…
use of borrowed capital (mortgage) to increase the potential return of an investment.
Leverage is also known as…
“other people’s money”.
In a Debt to Equity Ratio, debt is what the ________ ____, equity is ___ ____ ____ ___ ________ ___ __ ___ ________.
investor owes.
how much cash the investor has in the property.
If a property is valued at $1,000,000, and the total debt is $600,000, with a debt ratio of 60%. The equity ratio would be…
40% ($1,000,000 - $600,000 = $400,000, which is 40% of $1,000,000).
The net operating income is…
equal to the gross income from a building minus operating expenses.
NOI (net operating income) is essentially the…
cash flow from a property before paying any debt service (mortgage payment) or taxes.
The capitalization rate is the…
annual return that an investor expects to receive from a commercial property.
The formula for Capitalization Rate is:
Net Operating Income / Value = Capitalization Rate
If a property sold for $1,200,000, and the net operating income is $60,000, what is the capitalization rate for the property?
$60,000 / $1,200,000 = 0.05 or 5%
The Cap Rate equals 5%
ROI is a…
percentage return on money invested in a property by an investor.
ROI (Return on Investment), like COC (Cash on Cash Return), is usually calculated on a…
yearly basis, meaning you must multiply the monthly cash flow by 12 and divide it by the down payment.
Formula: Cash Flow (on a yearly basis) / Down Payment.
Real estate is considered an…
illiquid asset because it cannot quickly or easily be sold.
Time value of money is the idea that…
money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
Time value of money is a process that calculates the…
value of an asset in the past, present, or future.
It is based on the idea that the original investment or principal increases in value over a certain time.
Industrial investment properties include the following:
– Heavy manufacturing – Light manufacturing – Multi-tenant – Owner Occupied – Self Storage – Special Purpose – Warehouse / Distribution
