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  • Writer's pictureColleen

Tips for Investors: Commercial Lease Options

Are you interested in making money with commercial real estate? Personally, I feel like this is a great way to invest in your future and add an income stream into your life- but I may be biased. If you are like me though then hopefully you will find this helpful as you get started. One way to make money with your investment property is to buy the property and lease the space to a company. There are a few different way to lease your space. I've done a blog on residential lease options, but lets go over the commercial lease options because it's important to keep your portfolio varied and if real estate is your go to investment then we should make sure we are varying what real estate we invest in and how we produce an income from each property. Without further ado, lets go over the 3 types of commercial lease options available to you.

Flat Rate sale: This is the most basic of leases and what most people start off with thinking is the only lease option available to them. The rent is fixed and does not change regardless of time or sales, or any other factors. This type of lease is good for an established business to lease, or for a new landlord who wants to have a sure bet, but also if you are looking at a new location or market where you aren't as sure of what the outcome. This lease is a safe guarantee of a fixed amount to you, making it the perfect solution when you are entering into something without guarantees.

Percentage of Sales: This lease sounds like exactly what it is, it's a lease where the lessee pays a lease which is based upon a base price, plus a percentage of the sales. If you are leasing to a business that experiences big fluctuations throughout the year, or is new to the area or is just a new business this may be a great way to incentivize them renting from you since they only pay more when they make more, and it allows them the ability to have a bad month here or there as they get started or as the seasons change. This lease is typically written in with a base price that is lower than the typical rent in the area but then the lessor gets the added bonus of a percentage of sales. Plus if you are putting this lease together for a new business then as they grow their business, and sales increase, your income profits will also grow. This is also a great lease to offer an established business that you know will have lots of sales since it means that you will be making more than what you could have asked for in a flat rate rent and the business feels good about it because the higher their rent means the high their sales.

Growing Lease: A growing lease is a lease that grows. It can grow by a percentage each year, or by a fixed amount, that part is up to you and your lessee. This is another great option if you are renting to a new business which allows a the new business time to grow without pricing them out. Maybe your lessee is incurring a lot of start up costs at the moment and has a lot of inventory, but is certain that if given a year or two of leeway the business will be able to pay more because they just need to sell off some inventory. This type of lease works like a cushion for the lessee early on and eventually turns into a very profitable money maker for you since you can factor in raising the price to cover the money lost during the first few years of receiving a lower rent amount. 

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