We won’t deny that being a residential landlord can be great. However, commercial space has major advantages over residential property. Prior to investing in real estate, you should consult a Wilmington NC commercial real estate firm and consider these five advantages.
Longer Lease Term
Most residential lease terms are for one year, with renewal options for another year. However, commercial property tenants want long-term leases, allowing them to maintain the same overhead expenses over a longer period of time. This as well as location is vital for retail tenants or one that receives visitors. Long-term leases benefit commercial landlords as well. When considering a refinance, banks prefer to see long-term leases.
Profitable Rent & CAM Charges
Residential spaces have simple rent charges. This is what is included and this is the amount you pay each month. Commercial leases can be different, however. It is common for a tenant with a new business to receive a discount while getting their business off the ground. Rent is expected to also go up and over time it can increase quite a bit.
A ratchet clause may be attached to commercial leases; meaning the rent is increased by an agreed-upon percentage each year. Part of the utilities is commonly paid for by the tenant. In some areas, Common Area Maintenance (CAM) must be paid for by the tenant. A Triple Net Lease (NNN), may be used as well for commercial spaces.
Paid Improvement by Tenants
Unlike residential, commercial spaces generally, require some improvements. Space must fit the specific needs of the tenant. This is known as “fit out” and the tenant performs these needed improvements. This can include simple to full renovations. Generally, the tenant pays for much of the work. Due to the additional investment by your tenant, they won’t want to leave the location anytime soon.
Greater Collateral
Collateral collected on a residential lease is the security deposit which at most is 1 and 1/2 times the monthly rent. Commercial office space for lease can collect much more. Some other things that can be taken as collateral include:
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Improvements
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Personal guarantee
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Remainder of lease due to acceleration
Use of Exclusivity
The tenant and landlord benefit from exclusivity. Exclusivity limits where a tenant may open should they vacate your rental unit and also limits who you may lease to in areas close to your tenant. Furthermore, the tenant agrees they will not open a store near that location if they vacate the rental space.
For an inclusive list of commercial properties for sale in Wilmington NC, checkout our website!