Tutorial: Calculating Commercial Rent And Understanding Lease Types
It's important to understand how commercial rent is priced and what are the things that are accounted for when deciding the final rent price of property. There are major differences between Commercial Leases and Residential Leases.
To begin with, commercial leases use many methods to apply the pricing to their properties. The decision on what type of contract to use depends solely on what kind of business that commercial space is or will be utilized for. There are many decision to be made, but more importantly, it is crucial that you are aware of what type of method you want to use.
It's also important to take into account the current state of the economy of the country you live in. The economy is a decisive factor on the method you want to use, and if you should be renting with commercial leases or private ones. There is also the third option of a Multifamily Leasing Technology, which we'll cover at the end.
There are two main ways to price the commercial lease accordingly:
Rent Per Square Foot
This category is a very standard method and very simple as well: The rent price is set at $xx.xx per square foot of the commercial space. If you want to apply this method to define a monthly fee or an annual amount, that's up to you.
When using this method, you define each square with a price. If the price of the square is $1.00 per month and you have a room with 1,000 square feet, renting that room has a price of $1,000 monthly.
This category is the other option, and it's the most common and conventional one. Sometimes, the price per square foot is too technical and might not cover exactly what the landlord is looking for.
The percentage lease is more fluid than the previous one and covers the exact needs of the real estate agent. It has two different approaches as well.
In this method, the landlord determines a base rent that is proportional to what they are looking to get from the retail price. This value is a decision that depends on what subcategory the landlord chooses to go with.
Then, in additional to the base rent value, the tenant has to pay a percentage of their retail gross income. This rule allows for better flexibility and a better value over time if the location is a good one and the local economy is stable.
In other words, apart from the base value, there are two methods to apply a percentage that is an additional value over the income.
The different approaches of the percentage lease are:
• Minimum base rent + percentage of all the gross receipts over a certain base amount: Here, the tenant pays the minimum base rent that the landlord specifies in the contract, then adds a percentage, also decided by the owner, of all the gross receipts of the determined base rent value.
• Minimum base rent + percentage of all gross receipts: The difference here is that the gross receipts are not dependent on the proportion that of the other method. They start from zero, independent of any other variable. From day one, the base rent + the measured receipts are part of the total value to be paid.
Multifamily Leasing Technology is a method of renting for families or friends that want to rent a house or an apartment but don't have the budget for it. It's a great, modern way to structure your lease while accounting for different types of buyers and interested clients.