How Do You Calculate Gross Rental Income?
The most common question I am asked by clients is, “So what is the total gross rent that I will be responsible for paying?” Answering this often includes an explanation that each building is different and every landlord has a different definition as to what gross rent entails for their space.
As far as tenants are concerned, gross rent includes all real estate costs associated with renting a space:
- Base Rent
- Taxes
- Building Insurance
- Common Area Maintenance (CAM’s)
- Building Management
- Parking Costs
- Gas & Electric Utilities
- Telephone & Data
- Tenant Insurance
- Tenant Improvements
These costs are not always clearly laid out in the marketing material of various property listings and some of the costs vary broadly from property to property (i.e. taxes on office/flex space vs downtown office space). In addition, some of these costs are entirely founded in what the tenant may require and are outside of the landlord’s control. Items like data wiring or tenant specific improvements need to be assessed prior to finalizing any deal and signing a lease. I define these costs by placing them into two categories: gross rent & variable costs.
Example One (Triple Net “NNN”):
Base Rent + NNN = Gross Rent
NNN = Taxes + Building Insurance + CAM’s
Gross Rent / 12 months = Monthly Gross Rent
Example Two (Modified Gross “MG”):
Base Rent + Additional Rent (Utilities?) = Gross Rent
Additional Rent varies from property to property, so always ask what additional rent includes.
Gross Rent / 12 months = Monthly Gross Rent
- Will you please send me a breakdown of your NNN’s or additional rent?
- Do these expenses include items like management, gas & electric utilities?
- If gas & electric utilities are not included, how are they charged? Are they seperately metered or pro-rated?
- Can you send me a 12-month average if utilities are not included? (This information can also be achieved by calling the utility provider for the building.)
- Tenant Improvements: Some spaces are ready “turn-key”; the tenant signs the lease, grabs the keys and moves right in. Other spaces require a build-out, meaning that to prepare the space to meet the tenants needs, the landlord and tenant must negotiate who will pay for and be responsible for completing a certain amount of finish.
- Telephone/Data: Always carefully review your costs as they are associated to your connectivity. Some buildings are wired with access to high speed internet while others do not have a major service provider like Comcast or Century Link. Keep in mind data costs will vary broadly as service providers have different definitions of “high speed.” Make sure you are comparing this real cost to weigh your options when looking at various properties!
- Landlord Incentives: I find it is often overlooked that landlords may offer incentives. These discounted costs deviate from one building and it’s landlord to another, but always keep in mind to ask.
As you can see, there is no straightforward answer regarding what gross rent does and does not include. Whether you are a tenant or a landlord, these costs should be clearly defined in your lease agreement. If you have any questions regarding your current or future lease, please contact me via E-mail at todd@wearemarket.com or phone (303) 449-2131 or Twitter @bouldertodd.
