Frequently asked questions

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GENERAL QUESTION

What exactly is Commercial Real Estate?

The term "Commercial Real Estate" can be used to refer to any dealing with real property in a business context. It could involve leasing out office space, owning an apartment complex, or selling real property along with and as a part of the sale of a business.

What does a commercial real estate broker do?

A commercial real estate broker is a certain type of professional who has been licensed to help various clients buy, sell or lease real estate properties. These properties are generally used for commercial purposes. If someone wants to use a property for their home, they will need to seek out a residential real estate broker instead.

An easy way to understand what a commercial real estate broker does is to imagine that they are the “middle man” between a business and a property or building they want to purchase for their business.

What is commercial real estate cap rate?

Commercial real estate cap rate (which is short for capitalization rate), is the rate of return of an investment in commercial real estate, based on the amount of income it is expected to generate. This statistic is generated to help an investor determine the potential return on their investment in the property.

The commercial real estate cap rate of a property can be determined by taking the net operating income and dividing it by the current market value of the property. The net operating income can be determined by looking at the annual return on the property after subtracting any operating costs of the property.

Should I be looking for a high or low CAP Rate?

Ideally you buy at a high cap rate (more income for each dollar invested) and sell at a low cap rate (more dollars per dollar of NOI).

What is the letter of intent?

A letter of intent is a document that has been written up to declare the intentions of the writer. From a commercial real estate point of view, the letter of intent describes what the terms of the real estate transaction are. The letter of intent is used to allow two parties (the property seller and the property buyer) to agree on all terms of the proposed deal.

A letter of intent is a document that has been written up to declare the intentions of the writer. From a commercial real estate point of view, the letter of intent describes what the terms of the real estate transaction are. The letter of intent is used to allow two parties (the property seller and the property buyer) to agree on all terms of the proposed deal.

Is a letter of intent legally binding?

Typically letters of intent are NOT legally binding. However, it is important to read everything you sign!

What are CAM charges?

CAM is an acronym for "Common Area Maintenance." In commercial real estate, many leases require the tenant (lessee) to pay a portion of CAM fees. The CAM charges are typically added on to base rent as additional rent (in addition to the taxes and insurance cost). A landlord typically will try to pass through as much of their expenses as possible through CAM charges, and if not negotiated upfront, these expenses can grow and grow over the life of the lease.

When is the best time to sell my business?

The best time to sell is when a business is doing well. Almost any business can be sold, even if it is not doing well, if the sale is handled professionally and priced correctly.

What are some of the common pitfalls in a commercial real estate business deal?

When buying, selling, renting or leasing a piece of commercial real estate, there are always risks involved. Your goal should be to minimize these as much as possible.

What is Net Lease?

"Net lease" is a term used for an arrangement in which the tenant or lessee is responsible for paying, in addition to base rent. These expenses, often called the "three nets", are property taxes, insurance, and maintenance. Because the rent collected under a net lease is net of expenses, it tends to be lower than rent charged under a gross lease. Net lease types include single net, double net, and triple net leases, with the term "net lease" often being used as a shorthand expression for any of these arrangements. A triple net lease (i.e., one that is net of all three of the major expense categories) is often abbreviated as "NNN lease", but is still pronounced as "triple net lease".

What is gross rent?

Monthly rent charged to occupy a premise which includes an estimate of utility costs. The renting party submits this amount to the owner or another third party on a monthly basis.

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