Commercial & Investment Properties Types of Leases Flashcards Preview

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Flashcards in Commercial & Investment Properties Types of Leases Deck (38)
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1
Q

In a gross lease, the landlord pays…

A

all expenses. These include property taxes, insurance and maintenance.

2
Q

The residential lease is a common example of a…

A

gross lease.

3
Q

In a net lease, the tenant pays…

A

some or all of the expenses.

4
Q

In a triple net lease, the tenant pays…

A

all of the expenses in addition to the rent.

5
Q

A net lease, in particular a triple net lease, is commonly used by…

A

commercial tenants.

A large company may have a triple net lease and rent an entire office building.

6
Q

Percentage Lease is a lease of property in which the rent is based upon…

A

the percentage of the volume of sales made upon the leased premises, usually provides for minimal rent.

7
Q

A percentage lease is typically used with…

A

retail tenants.

8
Q

A ground lease is a…

A

long-term lease of unimproved land, usually for construction purposes

For example, a lessee may be given a 99-year ground lease for a large vacant property. The lessee will build a large multi-family building on the property.
At the end of the 99-year lease, the lessor (the original land owner) will take back the land and any improvements on the land (including the multi-family building).

9
Q

A ground lease is also known as a…

A

land lease.

10
Q

A loft lease is for the…

A

rental of floor space this is not generally divided into rooms.

11
Q

A loft lease is typically for an…

A

open, unfinished space.

12
Q

A graduated lease is a lease in which the…

A

rent changes from period to period over the lease term.

13
Q

The graduated lease contract specifies the change in…

A

rental amount, which is usually an increase in stair-step fashion.

14
Q

An escalation clause allows landlords to…

A

raise rents during the term of the lease.

15
Q

Lease escalation clauses call for the…

A

increased costs to the tenant for different reasons at specified times during the lease term. These clauses protect the property owner against increases during the lease term.

16
Q

A use clause defines how the…

A

tenant can and cannot use the space.

17
Q

Usable square footage is the area contained within a building that is…

A

actually occupied by a commercial tenant.

18
Q

Usable space typically does not include…

A

elevators, stairs, mechanical spaces, etc..

19
Q

Rentable square footage is the…

A

total area of a space, some of which cannot be used.

20
Q

Rentable square footage equals the…

A

entire space, including the usable square footage and the tenant’s pro rata share of the building’s common areas, such as the lobby, hallways, and restrooms.

21
Q

The difference between the rentable and usable area in a commercial space is known as…

A

the loss factor.

22
Q

A pro forma is an…

A

accounting statement that forecasts income and expenses for a period of time, typically five or more years.

23
Q

Pro forma statements are typically used by…

A

investors to estimate their rate of return for a particular property.

24
Q

Leverage is the…

A

use of borrowed capital (mortgage) to increase the potential return of an investment.

25
Q

Leverage is also known as…

A

“other people’s money”.

26
Q

In a Debt to Equity Ratio, debt is what the ________ ____, equity is ___ ____ ____ ___ ________ ___ __ ___ ________.

A

investor owes.

how much cash the investor has in the property.

27
Q

If a property is valued at $1,000,000, and the total debt is $600,000, with a debt ratio of 60%. The equity ratio would be…

A

40% ($1,000,000 - $600,000 = $400,000, which is 40% of $1,000,000).

28
Q

The net operating income is…

A

equal to the gross income from a building minus operating expenses.

29
Q

NOI (net operating income) is essentially the…

A

cash flow from a property before paying any debt service (mortgage payment) or taxes.

30
Q

The capitalization rate is the…

A

annual return that an investor expects to receive from a commercial property.

31
Q

The formula for Capitalization Rate is:

A

Net Operating Income / Value = Capitalization Rate

32
Q

If a property sold for $1,200,000, and the net operating income is $60,000, what is the capitalization rate for the property?

A

$60,000 / $1,200,000 = 0.05 or 5%

The Cap Rate equals 5%

33
Q

ROI is a…

A

percentage return on money invested in a property by an investor.

34
Q

ROI (Return on Investment), like COC (Cash on Cash Return), is usually calculated on a…

A

yearly basis, meaning you must multiply the monthly cash flow by 12 and divide it by the down payment.

Formula: Cash Flow (on a yearly basis) / Down Payment.

35
Q

Real estate is considered an…

A

illiquid asset because it cannot quickly or easily be sold.

36
Q

Time value of money is the idea that…

A

money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

37
Q

Time value of money is a process that calculates the…

A

value of an asset in the past, present, or future.

It is based on the idea that the original investment or principal increases in value over a certain time.

38
Q

Industrial investment properties include the following:

A
– Heavy manufacturing
– Light manufacturing
– Multi-tenant
– Owner Occupied
– Self Storage
– Special Purpose
– Warehouse / Distribution