Thursday, December 28, 2017

Understanding a Triple Net Lease

Real estate is a confusing world of jargon and intricacies. When a tenant signs a lease, they may have just signed on to more than they bargained for.  If you're not in the real estate business than it can be easy to assume that there is only one type of lease, but, in fact, there are many different types of leases. A fairly common lease, especially with commercial renting, is the triple net lease. The triple net lease may seem like a fairly simple type of lease, but understanding what it entails before signing on to it can save a lot of financial heartache down the road.

Before explaining all the details of the triple net lease, some background on the different types of leases may be in order. There are two main types of leases, with many sub-divisions within those two groups. A net lease is where the tenant is responsible for paying not only rent, but all, or at least some, of all the costs included in the maintenance of the building. A gross lease is thought of as the opposite of a net lease; the tenant pays rent, but the landlord pays for the other costs of the building. A gross lease is what a tenant should be aiming for while a net lease is often what the landlord will be striving to get.

A triple net lease is clearly a type of net lease, but what does the triple signify? In a triple net lease, the tenant will pay a base rent along with property taxes, building insurance, and common area maintenance. The tenant also handles their costs in the property such as utilities, and their taxes. Some triple net leases will include provisions that make it clearer that the tenant is responsible for all of the costs of the building, making a triple net lease for close to an absolute net lease. The base rent will often be lower than you might expect to help offset the costs of the other stipulations of the lease. While leases differ for each property, one of the more common ways that landlords will bill the tenant is to have the tenant pay reimbursements. Reimbursements are simply the real-estate term for the amount that the tenant pays for the costs of the building throughout the year. Many triple net leases also include a provision to account for inflation, where the agreed cost of the reimbursements will go up by a set amount or percent each year for the duration of the lease. This does not include the fact the tenant will also have to pay an increased amount if the property taxes in the area go up unexpectedly.

Triple net leases are commonly issued to single-occupancy buildings in the name of simplicity, but this is not always the case. In the case of multiple occupancies, the cost of taxes, insurance, and maintenance are divided up between the tenants. What each tenant would pay is proportional to their use of the building, so if one tenant rents twenty percent of the building they would pay twenty percent of the taxes, insurance, and maintenance.

Now that triple net lease is a little bit clearer let's look at an example of how one would work. Bret's Better Bakery is looking for a new location. It finally finds the perfect spot, and the landlord leases it to Bret with a triple net lease. The rent for the building comes to ten thousand dollars per year. During the year, the landlord pays five hundred dollars in taxes, another five hundred in insurance. The landlord also pays a total of one thousand dollars for maintenance, utilities, and security. Combined all of those costs add up to two thousand dollars. So at the end of the year Bret's Better Bakery pays the ten thousand plus the two thousand dollars in reimbursements, making his total rent come to twelve thousand dollars. The next year taxes rise unexpectedly to seven hundred fifty dollars. On top of that the building suffers some damage making the maintenance cost go up five hundred dollars, which in turn causes the insurance to rise another two hundred and fifty dollars. That increase adds up to a thousand dollars on top of the regular rates, on top of the base rent meaning that the second year Bret's Better Bakery pays thirteen thousand dollars. It's unlikely that all of the components of the lease would rise simultaneously, but if they do the tenant still has to pay. The triple net lease can be tricky for tenants, but knowing what to look for when reading the lease can help avoid getting stuck with a price tag you didn't expect.

Today's New Listings!

29803 Bruce Dr, Willowick

7225 Hart St, Mentor

664 Outrigger Cv, Painesville

4058 Castlewood Ct, Perry

 

Thursday, December 21, 2017

Negotiating a Commercial Lease

While the internet and modern economy have made it increasingly hard to define “local business” and think about what businesses look like, one thing is still true for many industries and most businesses around the country: you will need a location to operate out of.  Leasing a commercial space is a great option that will let you feel comfortable and secure without investing too much of your money up front, but there are some things you need to keep in mind when leasing a property for commercial uses.  Namely, negotiating a lease can be tricky, and you shouldn’t assume that negotiating lease terms will be a quick and easy process.  Here’s some tips on the most important things you should address in your lease negotiations.

What Are The Terms?

While there are a lot of smaller details you will need to keep in mind when negotiating, it’s a good idea to start with the biggest and most important point first: the terms of your lease.  Your basic lease terms will dictate how long your lease runs for, and how much you will be paying in rent for the benefit of using the commercial space you are interested in.  Additionally, your basic terms will also dictate whether or not your lease can be automatically renewed, an important factor in making long term plans for your business.

Before you sit down to negotiate the terms of your lease, is a good idea to consult with a Commercial Realtor and a Real Estate Lawyer with any specific legal questions you have. Do not be afraid to have your Realtor negotiate in your best interest and not that of the Landlord.  This is very important to your business success.

Who Pays for What?

Beside the straight forward terms of rent and lease duration, the most important thing you will have to wrestle with in commercial lease negotiations is who pays for different elements of a property’s maintenance and upkeep.  Unlike residential properties where landlords are responsible for just about all maintenance issues, in a commercial lease a business owner is often liable for some upkeep fees.  Those could be as small and simple as specific systems, like maintaining air conditioning, or as big as full responsibility for a property’s upkeep.  Make sure that you read your lease carefully to see what maintenance fees you are responsible, and if you can, put a stipulation into your lease that you are only responsible for maintenance up to a maximum amount per year or project.

Where Are The Hidden Fees?

They don’t call them “hidden fees” for no reason, but if you dig through your lease carefully enough before signing, you will be able to find potential places and things you are paying for that aren’t immediately apparent.  For example, many commercial leases will charge tenants an upkeep fee for common areas and shared spaces, but if you do not benefit from those common areas it can be worth it to push for a smaller fee during negotiations.  Additionally, you will want to be aware of how utility expenses are calculated, and make sure that you won’t get hit with any big fees tacked on to your usual electric and water bill.  Read closely and look for all the fees that might creep up on you, and you can hopefully negotiate around them.

What Subclauses Can You Include?

While you may be presented with a basic lease to start, building in subclauses before you sign can help protect your business.  During negotiation, ask about the potential to include an exclusivity clause; doing so will ensure that no other business offering the exact same service will be able to open in a commercial area while you are around, and will protect you from niche competition.  And there are a lot of other clauses you can negotiate in as well.

A “right of first refusal” clause will help you guarantee that if another commercial space opens up in a plaza or development that you are leasing from, you will be able to get the first bid on it to either expand your business or relocate.  A sublease clause will allow you to sublet your commercial lease to another business if your plans change without paying high fees for breaking your lease.  An “anchor business” clause will make sure that if there is a signature drawing business in your plaza or development, the development owner will have to replace it quickly with a similar business if they leave.  All of these potential clauses can help you protect yourself, and can be introduced into commercial leases during negotiations.

Make sure you understand your Lease. Consult with your Commercial Realtor and a Lawyer to learn about your rights if you are unsure. These professionals will ensure that negotiating a commercial lease will not be a nightmare.  Review this post if you are looking for where to start.

Today's New Listings!

5123 Shepherds Glen, Willoughby

180 Steeplchase Dr, Willoughby Hills

9500 Hoose Rd, Mentor

7288 Hayes Blvd, Mentor

5459 Marshview Ln, Mentor

2060 South Ashwood Ln, Painesville Township

Monday, December 18, 2017

Today's New Listings!

7915 Brentwood Rd, Mentor

6290 Bryson Dr, Mentor

470 South Ashwood Ln, Painesville Township

78 Ava June Dr, Painesville Township

75 Ava June Dr, Painesville Township

Questions to Consider When Relocating

No doubt, relocating causes butterflies but often it is difficult to determine if they indicate excitement and anticipation or nerves and cold feet. Giving yourself a few questions to consider when relocating might assist in resolving the issue. Listing out your considerations on paper helps make the decision.

Can you afford the move?
Take time to lay out your budget. Consider actual moving costs but also the cost of living in the new location. Whether or not your new salary will cover expenses in the new area requires doing the math.

Is your family on board?
The unity of mind with a spouse or significant others goes a long way in providing a successful relocation. On the converse, the lack of it can prove miserable. Consider what this move means for your spouse’s career and relationships. Also, take into account the impact on schooling, social activities and friendships of your children.

What am I leaving behind?
Your history with a place, both in length and memories, plays a significant role in the decision to relocate. Childhood friends, parents nearby or visions of future involvement create emotional ties which are not easily severed. On the other hand, negative experiences and few relational ties can create a desire for a fresh start.

What opportunities lay ahead?
Determining the opportunities that lay ahead in a new town, county, state or country is vital. Spend time in the new area and speak to as many people as possible. Consider what parts of your family’s current lifestyle might have to be omitted or might be enhanced by the move.

What is the backup plan?
Considering the ramifications of the relocation not working out is important. Knowing the permanency of a decision due to logistics or inconvenience weighs in the decision. Talk through options with your spouse or a trusted friend.

What about you?
Ultimately, the decision to relocate should reflect what you desire to do and not what you believe you should do. Consider your personality and whether or not you do well with change. Determine if the relocation will bring happiness or fulfillment. Finally, after the considerations and homework, the voice in your gut is worth heeding. After all, big risk can equal big reward!

Thursday, December 14, 2017

Advantages of Buying a Multi Family as an Investment Property

Real estate investors often prefer to invest in single family homes because they feel a single family home holds its value, it can demand higher rent and they only have to deal with one tenant. A multi family home is a 2-4 family residence and there are advantages to owning this type of real estate that far outweigh single family rentals.

Multiple Income Streams
Multi family homes offer more than one income source with multiple tenants which provides some stability to the owner should one unit be vacant or one tenant defaults on their rent. With a single family home, if the property is vacant or the tenant does not pay, the owner is stuck handling the expenses on his own.

Cash Flow
Investing in a multi family is one of the most powerful real estate investment strategies that a person can use to create consistent cash flow each month. The rents that come in minus the expenses should provide a profit each month. Often a three or four family home could still provide a profit even if one of the units is vacant. Normally a single family home will only break even the first couple of years with rent, upkeep and expenses.

Easier to Manage
One of the advantages of buying a multi family home is that it makes it easier to manage the property rather than having several homes spread across the city. The expenses are less as well since there is only one roof, one exterior, one yard, etc.

Holds Their Value
Maintaining the multi family home will not just make it attractive to tenants but it will also allow an investor to increase the rents which will increase the owner’s cashflow. It will also increase the value of the property since a rental property’s value is determined by the amount of income it produces.

When looking for a sound real estate investment, an investor cannot go wrong with a multi family home. Be sure to consult a Realtor® to help you find multi families in your area, to assist you with calculating the income and expenses, and to determine the perfect investment for you!

Open Houses & Lease Purchases!

Open Houses for December 17, 2017

6712 Bayside Dr, Madison ( 3 & 4 bedrooms avail.)
Open 2:30-4:30pm
$129,900 
2bd 2ba

8240 Talbot Circle, Mentor
Open 2-4pm
$450,000 
4bd 3.5ba

175 Wood St, Painesville
Open 12-2pm
$109,900 NEW PRICE!  
4bd 2.5ba

771 Edgewood Rd, Richmond Hts  
Open 2:30-4:30pm
$214,900 NEW PRICE!  
3bd 2.5ba

34916 S Turtle Trl #14-B, Willoughby  
Open 12-2pm
$90,000 
3bd 1.5ba

 
Properties Considering Lease Purchase Option

V/L Mason Rd, Berlin Heights 
$200,000
Over 18 Acres of Residential Land!

6117 Saint Clair Ave, Cleveland
$164,900
Commercial Brick Building with Multiple Income Streams!

V/L Galloway Rd, Huron Township 
$400,000
Over 19 Acres of Residential Land!

V/L Columbus Ave, Sandusky
$100,000
27.9 Acre Lot in a High Traffic Area!

V/L Beatty Ln, Sandusky
$89,900
Private Wooded 5.71 Acre Residential Lot!

Today's New Listings!

8144 Puritan Dr #C, Mentor

6289 Carolyn Dr, Mentor

9512 Deer Rdg, Mentor

198 Radley Dr, Painesville Township

Monday, December 11, 2017

Today's New Listings!

38305 Berkshire Hills Dr, Willoughby Hills

8240 Talbot Cir, Mentor

58 Ava June Dr, Painesville Township

7290 Pinehill Rd, Concord

Is Building a New Home a Better Value than Buying an Existing Home?

Anyone who is on the market for a new home has asked themselves this question. Should I buy an existing home or build my own home? This can be a tricky question to answer and each individual will have a different point of view. Let’s take a look at the pros and cons for each option in relation to Value.

Pros to Building a New Home

  • Everything is New - When you build a new home, you do not have to worry about replacing major items in the near future, updating fixtures or repairing anything. There are no additional costs to move into the home or live there for several years to come.
  • Custom Design - A custom home will have a floorplan that fits the way you live and will have features that are unique to you so you will not have to make major renovations to retrofit the home to your needs.
  • Utility Savings - With newer energy efficient equipment and appliances, you can reduce your monthly utility costs which provides a significant annual savings.

Cons to Building a New Home

  • Double Payments - You will need somewhere to live during the construction of your new home which often means you will continue to pay a mortgage until your home is complete. There are also payments due on the construction of a new home such as the initial down payment, interest, land tax, insurance, allowance overages, etc.
  • Building Costs – Material costs are expensive when buying all new even though you can realize some savings when buying in bulk. Also labor and material costs increase as new builds increase in a market which can wreak havoc on a building budget.

Pros to Buying an Existing Home

  • Cost Approach – An existing home often sells less per square foot than a new home. The price of an existing home often does not give full value to the material costs used to build or finish the home, the upgrades or the cost of the land which means you can purchase an existing home with upgraded features on a premium lot for a lot less than a new build with the same features and lot placement. This makes buying an existing home a good value.

Cons to Buying an Existing Home

  • Repair Costs - There can be expensive repairs lurking around every corner. Even though everything checked out at a home inspection, a major item may need to be replaced in 1-3 years. Also, the home and its equipment may not be energy efficient costing you additional dollars every month.

Conclusion

As you can see, there are advantages and disadvantages to both options. Although building new will cost more initially, it will save money over the long haul with regards to repairs, updates and utility costs. If you look at the cost per square foot, then buying an existing home might make more sense. Therefore the decision to build new or buy existing will be based on preference since both options are good values!

Thursday, December 7, 2017

Today's New Listings!

371 West Parkway Dr, Madison

1731 Empire Rd, Wickliffe

9066 Arden Dr, Mentor

50 Ava June Dr, Painesville Township

 

Open Houses & Lease Purchases!

Open Houses for December 10, 2017

1793 Som Center Rd, Gates Mills
Open 12-3pm
$329,000 
3bd 1.5ba

479 W Streetsboro St #A, Hudson
Open 12-2pm
$85,000 
1bd 1ba

6527 Bayside Dr, Madison (Multiple units available for viewing)
Open 12-2pm
$150,000 
3bd 2.5ba

9009 Bluejay Lane, Mentor
Open 12-2pm
$224,900 
3bd 2ba

9635 Ryan Dr, Mentor
Open 1-3pm
$70,000 
2bd 1.5ba

8240 Talbot Circle, Mentor ;
Open 1-3pm
$450,000 
4bd 3.5ba

771 Edgewood Rd, Richmond Hts
Open 2:30-4:30pm
$219,900 
3bd 2.5ba

34916 S Turtle Trl #14-B, Willoughby
Open 12-2pm
$90,000 
3bd 1.5ba

 
Properties Considering Lease Purchase Option

V/L Mason Rd, Berlin Heights 
$200,000
Over 18 Acres of Residential Land!

6117 Saint Clair Ave, Cleveland
$164,900
Commercial Brick Building with Multiple Income Streams!

V/L Galloway Rd, Huron Township 
$400,000
Over 19 Acres of Residential Land!

V/L Columbus Ave, Sandusky
$100,000
27.9 Acre Lot in a High Traffic Area!

V/L Beatty Ln, Sandusky
$89,900
Private Wooded 5.71 Acre Residential Lot!

Monday, December 4, 2017

Today's New Listings!

5378 Strawberry Ln, Willoughby

39295 King Edward Ct, Willoughby

5479 Pinehill Dr, Mentor-on-the-Lake

1993 South Ashwood Ln, Painesville Township

1945 South Ashwood Ln, Painesville Township

9831 Johnnycake Ridge Rd, Concord

What is a Seller’s Market? What are the Advantages?

Seller’s market is a term used when the process of buying real estate favors mainly the seller. It is commonly characterized by the low inventory of housing which often allows sellers to raise their prices since buyers are competing against other home buyers in a low inventory market. Selling a home during a seller’s market offers several advantages.

Less Competition

When there is a low number of properties on the market, there is a greater chance that your property will sell. It is no longer a question “if” your property will sell but “when”. With a balanced inventory, there is no guarantee that a home will sell even if it is priced correctly and in good condition. With this same scenario, a seller’s market puts a lot of this fear to rest and sellers are counseled to begin planning their next course of action.

Quicker Sales

With a limited inventory and a high amount of buyers looking in a specific real estate market, your property will likely find a buyer quickly. Often homes will receive an offer within the first few days of listing in a seller’s market. This is because buyers have exhausted everything that is currently on the market and they are waiting for new inventory to appear. As soon as a new listing comes on the market, it will have several showings in the first few days and likely will receive an offer if it is priced reasonably well and is in decent condition.

Higher Prices

One of the biggest advantages that the seller’s market provides homeowners is the ability to sell their home at a higher price. Sellers will be able to put a higher asking price on their property since there is a greater amount of interest that could meet the price. A low inventory also makes it possible to receive multiple offers which again can increase the sales price.

Negotiation Power

Sellers will have a stronger position when negotiating with a buyer in a seller’s market. There is an underlying fear with a buyer that another offer will come in while negotiating with a seller so the buyer is more willing to concede so that they can lock in the purchase agreement. This may have to do with the price but often it has to do with closing dates and the seller having more say.

As long as there is a high demand for real estate and low inventory, we will be in a seller’s market. Although there are many advantages to a homeowner in this type of market, the price and condition are still factors. There is more leeway though in the seller’s favor!

Today's New Listings!

34645 Willow Creek Pl, Willoughby  - $399,000 1331 Bennett Rd, Madison - $329,900 7165 Hawthorne Dr, Mentor - $274,900 4423 Ashwood Ave...