Principles for Success in Commercial Real Estate
Author: Don Cramer
January, 2013 Issue
Real estate isn’t all the same, and the principles of residential real estate rarely apply to the commercial sector. When you’re just getting your feet wet in commercial real estate, it helps to have an understanding of the basic principles.
First, a nonbinding letter of intent is always recommended in larger commercial real estate transactions. What it does is let the two parties agree or work out details of the overall deal. Before signing contracts or laying down the foundation of a contract, a letter of intent is usually written. If you ever have to sign one, make certain it’s nonbinding first.
Rentable square footage is most commonly defined as the combination of usable square footage and a portion of a building’s common area. There’s approximately a 10 percent to 15 percent difference between the usable and the rentable square footage of a property. The rentable square footage can be calculated using the formula of: usable square footage plus a certain percentage of the building’s common areas. Be aware of these different types of square footage when purchasing, selling or leasing commercial property.
Commercial building leasing entails a monthly fee called the common area maintenance (CAM). When you’re renting a retail space, you’re paying for more than the given space your business is occupying. These fees are typically charged monthly, quarterly or annually, though in some cases, they’re charged when an area of the commercial building needs remodeling. When you’re renting a space, always keep in mind that CAM fees are rarely at a fixed rate and can increase depending on several variables.
Tenant improvements are defined as improvements a tenant makes in a given commercial property. They can range from wall coverings and flooring to air conditioning and fire protection. The guidelines and rules for these types of accommodations are usually outlined in a given lease. Always ensure what types of changes are allowed in a contract before signing on the dotted line. It’s imperative that you can make the necessary changes for your business in a commercial setting.
A commercial real estate broker has many duties and whether you are one or need to hire one, you should know what they are. A commercial agent must provide valid financial and analytical data relating to a given property in question. Also, the selling or leasing of a commercial real estate takes significantly longer than leasing or purchasing a residential property.
Buying and selling commercial property is a good way to make income. However, whichever side of the spectrum you’re on, you really need to be able to accommodate you and your consumers’. Start by using what you’ve learned here for optimal success.
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