What is NNN & CAM?
When leasing a commercial property, you’ll be faced with lots of decisions. Two of the most common questions, 1) what type of lease and 2) what is the common area maintenance for the building?
3 Types of Net Leases
There are three types of net leases a tenant can choose.
Single Net
Double Net
Triple Net (NNN)
The difference is what the tenant will agree to pay. In a Single Net, the tenant pays a lower base rent and property taxes. In a Double Net, the tenant will pay the base rent, property taxes, and insurance premiums. In a Triple Net (NNN) the base rent, property taxes, property insurance, and common area maintenance are the responsibility of the tenant (CAM).
The Most Common Type of Commerical Lease: NNN
The Triple Net lease is the most common type of commercial lease. In a NNN lease, the tenant is paying for the ongoing expenses which can be advantageous for landlords. Therefore, landlord will need to determine the expenses for the year to be included.
How to Determine CAM?
Most professional landlords will review historical expenses to base an annual budget. The property taxes and insurance rates should be fairly steady and easy to estimate. Landlords also need to consider the costs to maintain the building. This includes landscaping, hallways, stairwells, bathrooms, elevators, parking lots, driveways, and more. The type of commercial space you are renting will determine what common areas will need to be maintained.
One of the most difficult items to budget for is weather-related costs. For example, in the Tri-State area, snow is the largest variable. Some years, the snowfall may be minimal while other years it may require higher removal costs.
How Do I Figure Out My Monthly Rent Out As a Tenant?
It’s a basic calculation to figure out what the monthly rent should be:
SSquare Footage of Space X ( Marketing Base Rent + NNN Estimate) / 12 Month(s) = Total Monthly Rent
Here’s an example:
Square Footage Leased: 1,000 SF
Marketing Base Rent: $25.00 NNN
NNN Estimate: $5.50
1,000 X ($25.50 + $5.50) = $30, 500 Annual
$30,500 / 12 = $2,541.67 Monthly Rent in this example
Typically, a NNN lease will allow the landlord to adjust the NNN charge annually. These are the COSTS to run the property.
Work With a Professional Commercial Real Estate Agent
Understanding the types of leases and costs associated with maintaining a commercial space is essential for any real estate investor. That’s why it’s best to work with a trusted commercial real estate agent who can help educate you to make confident and smart decisions. With over 10 years in the business, I’m here to help! Contact me if you have any questions.
