Wednesday, August 24, 2016

Net Lease Options, What does Triple Net Mean?

Commercial Real Estate WI
Net Lease Options, What does Triple Net Mean?

By: Kevin Jones, REALTOR, RENE, BBA

One of the most common questions that I receive as a Commercial Real Estate Broker in Wisconsin relates to Leasing Language, NNN, NN, N, Modified Gross Lease, Gross Lease....What does it all mean!!!  Below is a simple explanation of the different lease options available to a business owner looking to expand, relocate or downsize.

Keep in mind EVERYTHING is negotiable and it is recommended that you contact an experienced local professional in the area of your search.  Out of town brokers, residential specialist trying to practice commercial real estate or 1st year sales reps should all consider teaming up with a local experienced expert in that commercial real estate market before leading their client into an offer to purchase or lease terms. 

What is a 'Triple Net Lease'

A triple net lease is a lease agreement that designates the lessee, which is the tenant, as being solely responsible for all the costs relating to the asset being leased, in addition to the rent fee applied under the lease. The structure of this type of lease requires the lessee to pay the net amount for three types of costs, including net real estate taxes on the leased asset, net building insurance and net common area maintenance. This type of lease can also be referred to as a net-net-net (NNN) lease.

DEFINITION of 'Double Net Lease'

An agreement in which the tenant is responsible for both property taxes and premiums for insuring the building. Unlike a single net lease, which only requires the tenant to pay property taxes, a double net lease passes more expenses along in the form of insurance payments. The landlord is still held responsible for structural maintenance expenses. Each month, the landlord receives the base rent plus the additional payments. Double net leases are most commonly found in commercial real estate.

DEFINITION of 'Single Net Lease'

A commercial real estate lease agreement in which the tenant is required to pay property taxes in addition to rent. A single net lease is a form of pass through lease in which taxes associated with the property become the responsibility of the tenant instead of the landlord. The landlord is responsible for the other operating expenses incurred of the property.

What is a 'Modified Gross Lease'

A modified gross lease is a type of real estate rental agreement where the tenant pays base rent at the lease's inception but in subsequent years pays the base plus a proportional share of some of the other costs associated with the property, such as property taxes, utilities, insurance and maintenance. For example, under a modified gross lease, a property's tenants might be required to pay their proportional share of an office tower's total heating expense.

What is a 'Gross Lease'

A gross lease is a type of commercial lease where the landlord pays for the building's property taxes, insurance and maintenance. A gross lease can be modified to meet the needs of a particular building's tenants. For example, a gross lease may require the tenant to pay the utility bills.
A gross lease allows the tenant to pay one flat fee in exchange for use of the property. The property owner is responsible for much of the associated fees associated with property ownership, such as property taxes and building repair costs, and may be responsible for certain use-based costs, such as standard utilities.

When determining the rental fee for a gross lease, the property owner can take into account all of the costs associated with the property and create a suitable monthly rental amount based on that information. The tenant is paying a fixed monthly fee that can cover a wide variety of expenses being handled by the property owner.

Gross Lease Risks and Benefits

A gross lease may actually cost a tenant more than if the property was associated with a net lease. Since the rental fee is based off of an estimate of the associated costs, created solely at the property owner's discretion, the property owner may overestimate the costs and pass that to the tenant as a higher rate. The benefit is that the exact cost is known from month to month, regardless of usage.
Net leases may allow tenants more control over certain costs and aspects of the property, but they come with a higher level of responsibility. If the tenant agrees to handle maintenance, the tenant may be able to make certain aesthetic changes to the property, such as selecting paint colors or landscaping, but the tenant will also be responsible for any necessary repairs. The tenant can also use discretion in keeping utility costs lower but will have to adapt if those costs rise unexpectedly.

-Definitions Sourced From Investopedia 2016

Tuesday, March 25, 2014

Intelligent Ways to Buy and Sell Real Estate as an Investment

A Crash Course in Tax and Investment Property

One way or another, Uncle Sam is going to get his cut. Count on it. And so will your state and local governments. That said, there are certain things you can do as a real estate investor to help manage your tax bill, and maximize your after-tax return on your investment.
In order to do so, however, you need to understand the primary ways in which investment real estate portfolios get taxed. You must also have a general grasp of some abstract concepts like calculating your tax basis, as well as the depreciation of capital investments. Hey, if this stuff were easy, we’d all be CPAs, right?
Warning: This article will only arm you with enough information to be dangerous. You can click on any of the links for more detailed information directly from the Internal Revenue Service. This article is not going to make you an expert. But you can become conversant with the basic terminology, so you can be better prepared for a meeting with your tax advisor.

Taxation of Rental Income

The IRS taxes the real estate portfolios of living investors in two primary ways – income tax and capital gains tax. (A third way, estate tax, applies only to dead investors, and will be left for another article).
Rental income is taxable – as ordinary income tax. That means you have to declare it as income on your tax return, and pay income tax on it by April 15th of the year after the year you receive it. (Corporations may have to declare this income quarterly).
Rental income receives better tax treatment than income earned from wages – you don’t need to pay FICA taxes on rental income, while you do have to pay FICA on wages you get from a W-2 (and double FICA on self-employment income!). It’s almost as if the system is rigged against the working man!
Your income is everything you get from rents and royalties on the property, minus any deductible expenses. You can’t deduct everything, though – you can only deduct mortgage interest and repairs you make that restore the property to its original minimally functional condition. You can’t deduct capital investments like new buildings, additions, or renovations. More on these later.

Capital Gains Tax

The second tax bill you need to worry about is capital gains tax. The IRS taxes you on any net profits you get out of a property when you sell it. If you’re “flipping” properties and you own the property less than a year, you pay short-term capital gains, which is the same rate as your marginal income tax rate. If you’re in the 28 percent tax bracket, you’ll pay a 28 percent tax on short-term capital gains. And you’ll like it, by God!
Ok, maybe not. But you’ll pay it. Unless you can hang on to the property for at least 12 months. In that case, you will qualify for more favorable long-term capital gains. Depending on your marginal income tax bracket, these taxes could range from zero to 15 percent. In every bracket, however, Uncle Sam takes a smaller cut out of long-term gains than out of ordinary income or short-term gains. And once again, we see the system favors the landlord investor over the worker.

Calculating Capital Gains

You pay capital gains tax on the difference between your selling price in the property and your tax basis. Your basis in a property is the total amount of dollars you have invested in the property for which you have not taken a deduction, from your purchase price to the amount invested in renovations and improvements (including labor costs on these projects!). If you have deductions associated with the property, you subtract them from your tax basis. If your basis is higher than your sale, you have a capital loss. You can subtract losses from a given year from gains to reduce your tax bill. If you have more losses than gains, you can “carry forward” these losses into future years, to cancel out capital gains in future years and then to cancel out up to $3,000 in income. (Note, if you take a capital loss on a property, you cannot buy the same or substantially identical property back for at least 30 days, under so-called “wash sale” rules.

How To Defer Capital Gains Taxes – Indefinitely! An Intro to Like-Kind Exchanges

The IRS provides an important exception to capital gains taxation, made-to-order for real estate investors: If you own an investment property, you can sell your property at a profit and roll your money over into another property within 60 days without having to pay capital gains taxes at all – a transaction known as a Section 1031 exchange, named for the section of the U.S. Revenue Code that allows it. It has to be a property of “like kind.” You cannot swap your rental property for a personal residence, or vice versa. For this reason, these exchanges are sometimes called like-kind exchanges.
The 1031 exchange makes it possible for real estate investors to defer paying capital gains tax almost indefinitely – which is another advantage over investing in mutual funds, stocks, bonds and other securities or collectibles. Outside of a retirement account, you have to pay tax on gains in these items by the April 15th in the year after you sold them.

Depreciation and Amortization

This is a broad concept, so we can only cover the very basics here. When you buy investment property – be it a building, a computer or a horse – the IRS knows that the item won’t stay young and new forever. Over time, the property will decrease in value. Depreciation is the process of claiming a deduction to compensate you for the property’s decrease in value during the year. Note: You can’t depreciate your personal residence. You can only depreciate investment property. For more information on the process of depreciation, see IRS Publication 946 – How To Depreciate Property.
Land, of course, doesn’t depreciate. But minerals underneath the land do. If you are extracting oil or other minerals, or timber, for that matter, from the land, you will account for the gradual loss in value through a process called depletion.
Likewise, when you make a purchase of investment real estate or capital equipment with a useful life of longer than a year (hopefully that applies to all your real estate!), the IRS knows you will be using that property to generate income for a long time to come. Except in certain circumstances, then, the IRS does not allow you to deduct the full cost of your investment in the first year. Instead, you must amortize your investment over a number of years. For cars, you have to spread your deduction out over five years. For real estate, you must spread the deduction out over 25 years. For more information on how to account for amortization and depreciation on your tax return, you can download the IRS instructions.

Passive Activity Rules

Again, these rules are complex. But in a nutshell, if you are a passive investor – meaning you are not working day to day in the business of managing your real estate investments – you are subject to passive activity rules. Basically, you can only deduct passive losses to the extent you can cancel out gains from passive activities. These rules restrict your ability to use passive activity losses to offset capital gains elsewhere in your portfolio. Congress implemented these rules in 1986 to eliminate tax loopholes and abusive tax shelters. So thank your parents and grandparents for ruining it for you. And their accountants.
Most individual investor landlords can deduct up to $25,000 per year in losses on rental properties, if need be. Hopefully you won’t have to make use of this provision much.

Property Taxes

Just as Uncle Sam takes his cut, so do his local nieces and nephews. Expect to pay property taxes to local and county governments each year.  Your local government will assess the market value of your property at its “highest and best use,” and charge you a percentage of that value every year. You can deduct property taxes against your rental income, though, provided the property tax is uniformly assessed throughout the jurisdiction and is not a special assessment.

Other Tax Deductions

Be on the lookout for opportunities to take deductions for these common real estate investment expenses:
  • Mortgage interest
  • Tax advice and preparation fees
  • Legal fees for business purposes (but not for personal reasons)
  • Mileage
  • Business use of your home (the home office deduction)
  • Advertising fees
  • Employees (but if they are working on capital improvements or renovations, you have to amortize their labor costs as part of your capital investment, rather than as a current year expense.)
by  on March 3, 2012

Wednesday, February 19, 2014

21 Tips to sell your home this spring!

If you are planning to put your house on the market this Spring, it goes without saying that you are hoping to sell your home as quickly and as close to asking price as possible! Set the stage for success with these 21 tips for styling and upgrading your home, and see results -- fast.
1. Boost curb appeal. This is something you always hear, and with very good reason. Many people thinking of touring your home will do a quick drive-by first, often deciding on the spot if it is even worth a look inside. Make sure your home is ready to lure in onlookers with these tips:
  • Power wash siding and walkways
  • Hang easy-to-read house numbers
  • Plant blooming flowers and fresh greenery
  • Mow lawn, and reseed or add fresh sod as needed
  • Wash front windows
  • Repaint or stain the porch floor as needed
2. Welcome visitors with an inviting porch. Even if you have only a tiny stoop, make it say "welcome home" with a clean doormat, potted plants in bloom and -- if you have room -- one or two pieces of neat porch furniture. Keep your porch lights on in the evenings, in case potential buyers drive by. Illuminating the front walk with solar lights is a nice extra touch, especially if you will be showing the house during the evening.
3. Get your house sparkling clean. From shining floors and gleaming windows to clean counters and scrubbed grout, every surface should sparkle. This is the easiest (well, maybe not easiest, but certainly the cheapest) way to help your home put its best foot forward. You may want to hire pros to do some of the really tough stuff, especially if you have a large house. Don't skimp -- this step is key!
4. Clear away all clutter. If you are serious about staging your home, all clutter must go, end of story. It's not easy, and it may even require utilizing offsite storage (or a nice relative's garage) temporarily, but it is well worth the trouble. Clean and clear surfaces, floors, cupboards and closets equal more space in the eyes of potential buyers, so purge anything unnecessary or unsightly.
But it's my style! Guess what? It may not be the style of those seeking to buy a house in your neighborhood. So even if you have an awesome vintage-chic look going on, rein it in for the sake of appealing to the most number of people. You can bring your personal style back into play in your new home.
5. Strike a balance between clean and lived-in. Yes, I know I just said to get rid of all your clutter (and you deserve a big pat on the back if you did it), but now it's time to judiciously bring back a few elements that will really make your home appealing. Think vases of cut flowers, a basket of fresh farmer's market produce on the kitchen counter or a bowl of lemons beside the sink.
6. Style your dining room table. The dining room is often a blind spot in decorating the home. Between dinners, a large dining table can look bare and uninviting, so styling it up with visitors in mind can increase the appeal. An oversize arrangement can look too stiff and formal, so try lining up a series of smaller vessels down the center of the table instead.
7. Take a good look at your floors. At the bare minimum, give all floors a thorough cleaning (and steam clean carpets), but consider having wood floors refinished if they are in poor shape. If you don't want to invest in refinishing floors, the strategic placement of area rugs can go a long way.
8. Rearrange your furniture. In the living room, symmetrical arrangements usually work well. Pull your furniture off the walls and use pairs (of sofas, chairs, lamps) to create an inviting conversation area.
9. Choose sophisticated neutral colors. Now is not the time to experiment with that "fun"-looking lime green. But that doesn't mean you need to go all white, either. Rich midtone neutrals like mocha and "greige" create a sophisticated backdrop that makes everything look more pulled together.
10. Create a gender-neutral master bedroom. Appeal to everyone with a clean, tailored master bedroom, free of personal items and clutter. You can't go wrong with clean, crisp linens, tasteful artwork and a blanket folded at the foot of the bed.
11. Open those closets! Open-house visitors will peek inside your closets. Closet space can be a make-it-or-break-it selling point for buyers, so show yours off to their full advantage by giving excess stuff the heave-ho. Again, this is really important, so even if you need to store a few boxes elsewhere, it's worth it. Aim to have 20 to 30 percent open space in each closet to give the impression of spaciousness.
12. Clean up toys. Of course there will be families with children looking at your home, but just because they have kids too doesn't mean seeing toys strewn everywhere will sell them on the place. When people are house hunting, they are imagining a fresh start. Show them that in this house, it is possible to have a beautifully organized kids' room, and they might be swayed.
13. Use "extra" rooms wisely. If you have been using a spare bedroom as a dumping ground for odd pieces of furniture and boxes of junk, it's time to clean up your act. Each room should have a clearly defined purpose, so think about what potential buyers might like to see here. An office? A guest room? Another kids' room? Whether you buy inexpensive furnishings, rent them, or borrow some from friends, making a real room out of a junk room will have a big payoff.
14. Try a pedestal sink to maximize space. If you have a small bathroom but a huge cabinet-style sink, consider swapping it out for a simple pedestal version. Your bathroom will appear instantly bigger.
15. Use only perfect personal accents. Especially in the bathroom, it is important that anything left out for visitors to see is pristine. If you have a gorgeous fluffy white bathrobe, hanging it on a decorative hook on the door can be an attractive accent -- but if your robe is more of the nubby blue floral variety, you might want to hide it away. Look at every detail with a visitor's eye -- bars of soap should be fresh and clean, towels spotless, the garbage always emptied (you get the idea).
16. Entice people to explore the whole house. By placing something that draws the eye at the top of the stairs, in hallways or in corners, you can pique curiosity and keep potential buyers interested throughout a whole home tour. A piece of artwork, a painted accent wall, a window seat, a vase of flowers, a hanging light or even a small, colorful rug can all work to draw the eye.
17. Show how you can use awkward areas. If you have any room beneath the stairs, or a nook or alcove anywhere in your home, try to find a unique way to show it off. By setting up a small work station, a home command center with a bulletin board, or built-in shelving, your awkward spot becomes another selling point.
18. Beware pet odors. Really, this can be a big one! If you have pets, get all rugs steam cleaned and be extra vigilant about vacuuming and washing surfaces. Also be sure to keep any extra-loved pet toys and doggie bones hidden when tours are scheduled.
19. Create a lifestyle people are looking for. Generally speaking, you want to play up what your neighborhood or area is known for. Have a house in a quiet, grassy suburb? Hanging a hammock in your backyard and a bench swing on your porch could be the perfect touch.
20. Stage the outdoors too. Even if your condo has only a teensy postage stamp–size balcony, play it up with a cute cafe table and chairs, a cheerful tablecloth and even a little tray of dishes or a vase of flowers. When people look at this scene, they won't be thinking "small," they will be thinking, "What a charming spot to have breakfast!"
21. Think seasonally. Make sure your garden is in beautiful shape in the summer, and that any extra features you have, like a pool or a fire pit, are cleaned and ready to go. Take advantage of the cozy vibe of the season in autumn and winter, by building a fire in the fireplace and simmering hot apple cider on the stove.
Laura Gaskill: You can find Gaskill on her blog Lolalina (, where she shares inspiring interiors, design finds, cute baby pictures, and updates on her own progress in decorating her first house.