Discover the different down payment options for CRE leases

Discover the different down payment options for CRE leases

Luckily, there are several down payment options for commercial real estate leases. Putting down a cash security deposit on a commercial real estate property could result in a large amount of money. With the cost of nearly everything on the rise, the business could use this capital to better their chances of success. Using the capital for hiring expenses, equipment purchases, and so on would benefit them more. But as the landlord, you still need to protect yourself. Also, a large down payment could differentiate between signing the lease and not. Having other options like the one Otso provides is ideal for both landlords and tenants.

Let’s look at some options for tenants and landlords when applying to rent a commercial property.

Security Deposits

A security deposit is a tenant’s payment to a landlord before the lease begins and the keys are handed over. The landlord holds this payment as security against unknowns that may occur during the lease term, rather than applying it towards rent.

Usually, landlords hold security deposits until the tenant moves out. Landlords usually use them to cover the cost of damages incurred during the tenancy. For as long as we can remember, people have considered them “normal” in business. But, nowadays, there are other options.

Letters of Credit

Letters of credit are letters from the tenant’s bank that say two things. The deposit amount funds are reserved and available. If the tenant defaults on the lease, the landlord is able to collect the money. While these are loved by landlords, they’re not great for the tenant because of additional fees. Tenants typically have to pay the bank a fee to keep that money in reserve and not lend it to others. This results in letters of credit being a costly alternative to a security deposit.

Surety Bonds

Surety bonds are legally binding contracts that ensure obligations are met or, in the case of failure, that the entity requiring the bond will be paid. They exist between the principal, surety, and the obligee- and are great for residential and multi-family real estate– but not commercial. In commercial real estate, they’re too expensive and are not flexible enough to meet the requirements of the lease terms. So what are we left with? What else is there to do that benefits both the landlord and the tenant? Enter, Otso.

Otso

Otso is the solution that provides an option for landlords to replace cash deposits in their commercial leases so that the businesses can put the hard-earned capital to better use. With Otso, landlords get the security of AA-rated coverage and up to $50,000 in lease performance guaranteed for a small fee beginning at $250/mo. The landlord covers the cost, but because the monthly fees for Otso are so small, they typically negotiate them into the rent itself. Tenants love it because it no longer requires a cash deposit and they keep the capital, and landlords love it because they get 3-5 times the coverage of a security deposit. Everybody wins.

STRATAFOLIO Co-Founder and CEO Jeri Frank sat down with Otso Co-Founder and President Marissa Limsiaco in a LinkedIn Live event, Creative Ways to Manage WIth Less Risk and Happier Tenants. You can watch the YouTube video here to learn even more about Otso.

In the modern world of commercial real estate, there are old ways of doing things, but there are more modern solutions. Contact Otso today to learn more about their turnkey solutions to securing a lease.

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