In this current economy and commercial real estate market, there are far more investment property leases than sales. In most cases, sales are more difficult due to restrictions on obtaining loans from lending institutions and finding the right people who can qualify for a loan in today’s market.
So if you are a real estate agent you should not turn your back on sales, but instead focus on leasing properties for a while. Brokerage leasing is the ‘bread and butter’ for many brokers right now. That said, there are several types of properties and lease sizes that you can work on. You have a few options here, so ask yourself these questions to find the leasing market that works for you:
- What type of property is most popular to rent right now?
- What drives leasing today in your area?
- Where do the tenants come from?
- What are tenants looking for in services, amenities and incentives today?
- Where are the good properties to rent?
The part of question 4 above raises an interesting topic of ‘incentives’. Many tenants will ask for them and expect them. Preparation is the key to handling them. The owners you act for must be prepared for them.
Lease incentives are not actually ‘free’, as the landlord has to recoup the outlay or cost of the incentive. That is why there is an ‘apparent rent’ and an ‘effective rent’. If you have an incentive in a lease agreement, create the ‘nominal rent’. The difference between the ‘nominal’ and the ‘cash’ will be the cost of the incentive and its recovery over the duration of the lease.
Tenants are usually not aware of this process and there is no reason to explain it. The only person who needs to know what he is doing is the landlord, so if an incentive is to be provided on a property or in a lease, the rent will reimburse them. On that basis, every rental advertised at this time should be a ‘nominal’ rental to give you room to maneuver when applying for the incentive.
You can recoup the cost of the incentive through creative rental review profiles during the term of the lease. So you don’t have to create a radically higher nominal rent at the start of the lease (if you did, it would be more difficult to market the vacant lease).
If you want to demonstrate to the lessor that a lease agreement is a good deal on current terms and that you are getting back the incentive you paid out, use an NPV (Net Present Value) spreadsheet model to achieve the net present value assessment. term of the lease, both in nominal and comparable effective terms.
So the message here for you in this market is to find properties and leases to rent in sought after local properties. Understand prevailing market rents (real and effective) and then prepare incentive strategies for the landlords you work for. You can be the local leasing specialist.