If you have done any research on the world’s wealthiest individuals, you have probably found that most have extensive property holdings. Real estate investing is a primary strategy for many individuals who seek financial freedom. Although many of these professionals have residential properties, most have commercial property holdings as well. When you own commercial property, you have several options for calculating your rent.
Percentage Leases
Many landlords base their rent on a percentage of their tenants’ incomes. For example, you may accept 5% of your retail store’s gross receipts. The benefit is that as the store becomes more established and its sales increase, you also receive higher rent.
You can choose to take a lower percentage of your tenant’s gross receipts if you have a base amount. You may charge $1,500 for the base rent. Then, when your tenant makes $200,000 each month, you start collecting an additional five percent of their sales volume.
You can only charge a percentage of their gross sales over a lower base rent. This could be riskier because your base rent tends to be significantly lower, and the percentage may also be lower. However, you don’t have to wait for your tenant to make a certain amount of money before they begin paying you your percentage.
Square Foot Rent
You can also charge rent based on the square footage of the space you are leasing. For example, you may charge $20 per square foot per year. You can divide this total by 12 to get your monthly rate. This is the simplest and least risky way to set your rental fees.
Why Invest in Commercial Properties
Commercial real estate includes multi-family properties, office buildings, malls and other retail facilities, restaurants, storage, and warehousing. The variety of these properties creates opportunities to diversify your real estate portfolio. In addition, many of the tenants in these properties will be business professionals.
Commercial lessees tend to be more professional and stay for longer periods because they are often hesitant to change their location, especially after they establish a clientele and marketing. They also pay more for their spaces than residential tenants. They also typically handle building maintenance and repairs. Because they want their customers to have good experiences in their businesses, they also keep them clean. They may even remodel your facility.
As you create your real estate investing strategy, learn more about lease negotiations and commercial property opportunities.
