Commercial real estate, like many other industries, has its own vocabulary. Many people know the more common terms, such as tenant and landlord. There are, however, less common terms that you need to understand if you are considering investing in commercial real estate.
Important Commercial Real Estate Terms
Here are 11 important commercial real estate terms to know:
- Net Operating Income: Net operating income is the total rental income minus operating expenses.
- Capitalization Rate: The capitalization rate, or “cap rate,” is the net operating income divided by the cost of the building to show a rate of return.
- Return on Investment: Return on investment (ROI) is the profit earned divided by the cost of ownership.
- Rentable Square Footage: Rentable square footage (RSF) is the amount of space in a building that can be rented to a tenant and is a significant factor in determining the rental rate.
- Triple-Net Lease: A triple-net lease requires the tenant to pay all expenses associated with the building, including taxes, insurance, and maintenance.
- Full-Service Lease: Full-service leases require the tenant to pay a base rent while the landlord covers operating costs.
- Modified Gross Lease: A modified gross lease requires the tenant to pay a base rent and split the operating expenses with the landlord.
- Sublease: A sublease occurs when the current tenant leases a portion of their space to a subtenant.
- Vacancy Rate: Vacancy Rate is the amount of vacant space divided by the total space in the building.
- Real Estate Broker: A real estate broker or agent represents a buyer or seller through a real estate transaction.
- Property Manager: A property manager is in charge of operations, answering tenant questions, and arranging necessary repairs.
Don’t Get Intimidated; Find a Partner
While commercial real estate and the associated vocabulary can seem intimidating, you just need to find the right real estate partner. Please contact Steve Longenecker at WeBrokerCORealEstate or 720-600-9513 regarding any commercial real estate needs in Longmont, CO, and our neighboring communities.
We give out $250 gift cards for referrals that become our real estate clients.
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