What Is Leasing?
A lease is a legally binding agreement between two parties in which one commits to rent property owned by the other on particular terms. It allows a tenant or lessee to use a property in exchange for making regular payments to the property owner or landlord for a specified length of time.
It’s crucial to remember that there are various sorts of rent-to-own agreements, some of which are more consumer-friendly and flexible than others. When your lease expires, you have the choice, but not the responsibility, to purchase the home. If you decide not to purchase the property at the conclusion of the lease, the option simply expires, and you are free to walk away without having to pay rent or buy. With lease-purchase agreements, this isn’t always the case.
Types Of Leasing
There are three most common types of leasing including
1. The Gross Lease
The gross lease is usually to the tenant’s advantage. The most notable feature of this type of contract is that the tenant pays a single large sum. The landlord is responsible for insurance, utilities, janitorial services, and upkeep. The tenant may be required to pay for his or her own power, water, or gas on occasion. Because the landlord is expected to do more, the tenant’s rent is usually greater to compensate. A gross lease makes payment as simple as possible for the tenant, enabling him or her to concentrate on running and growing the firm.
2. The Net Lease
The net lease, on the other hand, favors the landlord. Tenants get a lower base rent under this agreement, but they must additionally pay a variety of maintenance expenses. The net lease determines which fees the renter must pay.
3. The Modified Gross Lease
Finally, the modified gross lease was created to strike a balance between the landlord’s and tenant’s interests. Tenants in this type of arrangement must pay their entire rent in one single sum, although the fees they must pay vary. The renter and the landlord must address maintenance, utilities, janitorial services, common area maintenance, and property taxes. This agreement also allows the tenant and landlord to have a more flexible and easy relationship.
Leasing vs Working Capital Loans
A lease is when you rent something for a set period of time but working capital loans is when you borrow money with a set interest rate and period of time. When it comes to financing, both loans and leases have their own set of benefits. Some of the major considerations include:
- Working capital loan rates are usually floating and are based on the prime rate or another index. On the other hand, the lease has special provisions, payments are generally fixed for the term of the lease.
- In a lease, up to 100% financing is available including soft cost and sales tax. On the other hand, in loans, 60-80% financing is available exclusive of the soft cost.
Location: Lubbock, Texas, United States
Work:Owner/Broker @ HubCityLending
Education:University of Texas at the Permian Basin, Master of Business Administration, 1999 – 2001