Percentage rent is rent due in lieu of, or in addition to base rent that is paid to landlords based on tenant sales. A percentage rent clause is nearly exclusive to retail leases. The actual amount of percentage rent can be determined by a formula with or without a breakpoint. For example, without a breakpoint, a tenant may pay a flat 5.0% of gross sales. With a breakpoint, percentage rent only applies once sales reach a predefined amount. This amount may be determined by a breakpoint which is a percentage of sales above a set dollar amount.
As an example calculation, say a tenant occupies 5,000 square feet and base rent is $10/sf and percentage rent is 4.0% of gross sales above $1,000,000. If gross sales were $1,100,000 for the period, then the tenant would owe $54,000 for the period (base rent of $10/sf times 5,000sf equals $50,000 plus additional rent of $1,100,000 gross sales less $1,000,000 breakpoint equals $100,000 times 4.0% equals $4,000 for a total of $54,000). Alternatively, percentage rent may be based on a “natural breakpoint” which is calculated by dividing the base rent by a predefined percentage. Continuing with the above example, the natural breakpoint would be calculated by taking the base rent of $50,000 and dividing by 4.0% which equals $1,250,000. In this case, the tenant would not have exceeded the breakpoint and thus no percentage rent would be due. The theory of the natural breakpoint is that percentage rent should only apply to sales in excess of the amount needed to achieve base rent (in this case $1,250,000 times 4.0% equals $50,000 which is the base rent amount).
Download the Free DST Guidebook
What is a 1031 Exchange? eBook
Download
1031 Exchange Calculator
Download
Filter by
Fractional 1031 Investing 1031 Exchange Capital Gains on Real Estate Capital Gains Tax General Real Estate Investing
Realized, 109 E 10th St, Suite 300, Austin, TX, 78701, United States
© 2019 Realized Holdings, Inc.
Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized”). Equity securities offered on this website are offered exclusively through WealthForge Securities, LLC, a registered broker/dealer and member of FINRA/SIPC("WealthForge"). WealthForge and Realized are not affiliated. WealthForge generally invoices the issuers and/or companies sponsoring real estate projects listed on the Realized1031.com marketplace for WealthForge's execution of the securities offering and other services; Affiliates of Realized are separately paid by WealthForge for use of Realized's technology, reporting, communications, and administrative services; and several officers and employees of Realized or its affiliates are registered representatives of WealthForge and may be compensated in such capacity. Thus, each of Realized, and those of its officers and employees that are registered representatives of WealthForge, will realize compensation through WealthForge as a result of any equity transaction. By accessing this website and any pages thereof (including any pages accessed by or through the website), you agree to be bound by our Terms of Service and Privacy Policy. Realized1031.com is intended only for accredited investors (for persons residing in the U.S.), and for non-U.S. persons residing abroad in jurisdictions where securities registration exemptions apply.
Realized does not make investment recommendations, and no communication through this website or in any other medium should be construed as investment advice, nor does it make any recommendations regarding the appropriateness of particular opportunities for any investor. Realized does not provide tax or legal advice and no communication through this website or in any other medium should be construed as tax or legal advice. All prospective investors must certify that they are accredited investors, suitable for this type of illiquid investment, and must acknowledge that they have received and read all investment terms and conditions. Many investment opportunities posted on this website are “private placements” of securities made pursuant to an exemption from registration and have not been registered with Securities and Exchange Commission (“SEC”) or any state securities regulator. Securities offered on this website are not publicly traded, are subject to holding period requirements, and are intended for investors who do not need a liquid investment. Securities offered on this website are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Realized, WealthForge or their respective affiliates, and MAY lose value. Realized makes no representations or warranties as to the suitability of any investment opportunity posted on this website as eligible like-kind property in connection with tax deferred exchanges under IRC §1031. Neither the SEC nor any federal or state securities commission or regulatory authority has recommended or approved any investment opportunity presented on the website or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Any financial projections or pro-forma returns shown on the website are illustrative examples only, and there can be no assurance that any such projections or valuations provided are accurate or in agreement with market or industry valuations. Any investment representation or information contained herein has been secured from sources Realized believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed on this website, and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity. Fluctuations in the value of the assets that are the subject of any investment are to be expected. Tenant vacancies, competition from similar properties, or potential environmental conditions at the property may negatively impact rents and cash flows. Additional risks exist due to a variety of factors, including, but not limited to, leverage, market risks, business risks, management, adverse tax consequences, and such other risks more particularly described in the related offering materials. There is a potential for loss of part or ALL of the investment capital, and each investor should understand that all capital invested may be lost. Investors should only consider these investments if they have no need for liquidity and can bear the risk of losing their entire investment. Check the background of this firm on FINRA's BrokerCheck.
*Past performance is not indicative of future performance.