2e:["$","$L2f",null,{"category":"$30","relatedArticles":[{"id":"cG9zdDoyNjY5NTg=","databaseId":266958,"postId":266958,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1477,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ4OA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19488,"categoryId":19488,"link":"https://smartasset.com/real-estate/articles","name":"Real Estate","postCount":{"pageInfo":{"offsetPagination":{"total":153,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"real-estate","ancestors":{"nodes":[{"name":"Investing","slug":"investing","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Investing","id":"dGVybTo1MzE4","slug":"investing","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$31","date":"2024-10-30T19:11:38","excerpt":"

A gross lease in real estate is a commercial lease where the tenant pays fixed rent while the landlord covers most property operating expenses, including taxes, insurance, utilities, and maintenance. This setup offers predictability for tenants and simplifies expense management for landlords. Knowing how a gross lease works helps investors and business owners assess potential […]

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As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. 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","

What Is a Gross Lease?

","

If you are looking to lease commercial real estate, you should familiarize yourself with what a gross lease is and how it works. A gross lease is a type of lease agreement that is often used in commercial real estate transactions, particularly in the context of office buildings, retail spaces and other types of properties that require a high level of occupancy. In a gross lease, the tenant pays a fixed rate that covers the rent as well as some, or all, of the operational costs depending on the terms.

","

There are two types of gross leases in real estate. A full service lease is exactly what it sounds like. Under this arrangement, the tenant pays a flat fee that includes the rent and all operational costs and expenses which can even include things like equipment and furniture. A modified gross lease is less inclusive. It includes the rent as well as a negotiated portion of the operating expenses, which is determined by the landlord.

","

Pros and Cons of a Gross Lease for Commercial Real Estate

","

Pros

","

Simplified budgeting: With a gross lease, tenants pay a fixed rent amount, making it easier to budget for monthly expenses. This predictability can be particularly beneficial for businesses with tight cash flow management.
Reduced administrative burden: Since the landlord handles property expenses, tenants are relieved from managing utilities, maintenance, insurance, etc. This allows tenants to stay focused on running their business.
Protection from cost fluctuations: Tenants are shielded from unexpected increases in property-related expenses, such as rising property taxes or insurance premiums.

","

Cons

","

Potentially higher rent: Landlords often incorporate the cost of property expenses into the rent, which can result in higher monthly payments compared to other lease types. Tenants may end up paying more than they would under a net lease arrangement.
Limited control over property expenses: Tenants have little say in how the landlord manages property expenses, which can lead to inefficiencies or dissatisfaction if the landlord’s standards do not align with the tenant’s expectations.
Lack of transparency: Since tenants do not directly pay for property expenses, they may lack visibility into actual costs or any landlord tax benefits. This can make it difficult to assess whether the rent is fair and reasonable.

","

Triple Net Lease vs. Gross Lease

","

A triple net lease, often abbreviated as NNN, is essentially the opposite of a gross lease in real estate. It requires the tenant to cover property taxes, insurance and maintenance costs in addition to the base rent. This arrangement can be advantageous for landlords, as it shifts the burden of variable expenses to the tenant, providing a more predictable income stream.

","

Triple net leases often provide tenants with more control over the property, as they handle maintenance and operational aspects. This can be appealing to businesses that want to customize their space or have specific operational needs.

","

Choosing between a triple net lease and a gross lease can affect landlords financially. A triple net lease provides stability since tenants cover rising property expenses, though landlords must be sure tenants can handle these costs. In contrast, a gross lease may appeal to more tenants for its simplicity, but unexpected property expenses can reduce profitability.

","

Bottom Line

","

","

Knowing how a gross lease works in commercial real estate is key for both landlords and tenants seeking clear, straightforward leasing terms. A full-service gross lease, which requires tenants to pay a single, all-inclusive amount, covers the landlord’s expenses. This setup benefits tenants who prefer stable monthly costs without managing additional fees.

","

Investment Planning Tips

","$3e","

Photo credit: ©iStock.com/staticnak1983, ©iStock.com/Anchiy, ©iStock.com/Vadym Pastukh

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An open-end fund is a type of mutual fund that allows investors to buy and sell shares on demand. This makes open-end funds highly accessible and flexible for investors seeking to diversify their portfolios. Commonly managed by professional fund managers, open-end funds pool money from multiple investors and can serve a range of investment goals. […]

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","

What Is an Open-End Fund?

","

An open-end fund issues shares to investors and redeems them upon request. Unlike stocks, open-end fund shares are not bought and sold between investors, but directly through the fund itself. The price of these shares is determined by the fund’s net asset value (NAV), which is calculated daily based on the market value of its underlying assets.

","

For example, a popular type of open-end fund is the mutual fund, such as a broad-market index fund. Suppose you want to invest $5,000 in an open-end equity fund. You submit the investment to the fund, and in return, you receive shares equivalent to $5,000 divided by the fund’s current NAV. As the fund’s holdings increase in value, the NAV rises.

","

Open-end funds often feature low minimum investment requirements, making them accessible to a broad range of investors. These can be either active or passive mutual funds, offering flexibility in terms of the investment’s management style.

","

How an Open-End Fund Works

","

Open-end funds operate through a process of continuous share issuance and redemption. Investors purchase shares directly from the fund at its current NAV, and when investors wish to sell their shares, the fund buys them back at whatever the NAV is at the time of transaction. This could help ensure liquidity.

","

The assets within an open-end fund are professionally managed by a team of experts who select securities to align with the fund’s objectives. These investments are pooled together, allowing investors to benefit from diversification and reduced risk when compared with investments in individual securities. Expense ratios, which include management fees and administrative costs, are deducted from the fund’s assets and vary based on the fund’s management style and complexity.

","

One key feature of open-end funds is their scalability. The fund’s size can expand or contract depending on the flow of investor money. This means that as more investors contribute funds, the portfolio manager can purchase additional assets, based on the fund’s strategy.

","

Pros of Open-End Funds:

","

","

Open-end funds offer several advantages. Here are four general ones to help determine your investment strategy:

","$4c","

Cons of Open-End Funds:

","

As with other investments, open-end funds also carry risks. Here are four common examples to keep in mind:

","$4d","

Frequently Asked Questions About Open-End Funds

","

How Are Open-End Funds Regulated?

","

Open-end funds are regulated by the U.S. Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. They must adhere to strict disclosure, reporting and operational requirements, ensuring transparency and investor protection. Regulations also govern portfolio diversification, leverage limits and redemption practices.

","

Do Open-End Funds Pay Out Dividends?

","

Yes, many open-end funds pay out dividends generated from income earned by their underlying securities, such as stock dividends or bond interest. Dividends can be reinvested into the fund or taken as cash.

","

Can You Sell Shares of Open-End Funds?

","

Investors can sell shares of open-end funds back to the fund company at the current NAV. This process ensures liquidity, and the proceeds are typically distributed within a few business days.

","

What Are Closed-End Funds?

","

A closed-end fund raises a fixed amount of capital through an initial public offering (IPO) and trades its shares on an exchange like a stock. Unlike open-end funds, closed-end funds do not issue or redeem shares after the IPO. Instead, investors buy and sell shares on the secondary market at a price determined by supply and demand, which may differ from the NAV.

","

Bottom Line

","

","

Open-end funds can offer a flexible, professionally-managed investment option for building a diversified portfolio. Their structure, which allows for continuous share issuance and redemption, makes them accessible to a wide range of investors. Though, depending on your financial goals, open-end funds may or may not fit into your investment strategy. So make sure you evaluate the benefits and drawbacks for your portfolio before investing.

","

Investment Planning Tips

","$4e","

Photo credit: ©iStock.com/Bojan89, ©iStock.com/wichayada suwanachun, ©iStock.com/ilkercelik

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The return on assets (ROA) ratio is a financial indicator that provides insight into how efficiently a company is using its assets to generate profit. This ratio compares net income to total assets, and a higher ROA indicates a more efficient use of assets, suggesting the company is being well-managed. Investors and analysts frequently use […]

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Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":792,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/e1f3d3a0e571088b1ba1f56a767f73d3?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. He runs his own independent financial planning firm called Belonging Wealth Management, where he helps clients plan out their retirement distributions, minimize taxes, build financial plans and more. He also holds a PhD in Finance from Hampton University, and spent years as an Assistant Professor of Finance at both Louisiana College and East Texas Baptist University.\r\n\r\nBrandon's areas of expertise include financial planning, retirement planning, taxes, Social Security, investing, annuities, general personal finance and more. His quotes have appeared in publications like Forbes, U.S. News and World Report, Business Insider and more.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Brandon","fullName":"Brandon Renfro, CFP®, RICP, EA","lastName":"Renfro, CFP®, RICP, EA","name":"Brandon Renfro, CFP®, RICP, EA","postCount":{"pageInfo":{"offsetPagination":{"total":98,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"brenfro","__typename":"User"},"writtenBy":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. 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","

A financial advisor can help you analyze investments and manage them for your portfolio.

","

What Is the Return on Assets (ROA) Ratio?

","

The return on assets (ROA) ratio is a financial metric that helps investors and business owners assess how efficiently a company is using its assets to generate profit. By examining this ratio, stakeholders can gain insights into the operational efficiency and profitability of a business.

","

Calculate ROA by dividing a company’s net income by its total assets. The resulting percentage measures how much profit is generated for each dollar of assets owned by the company. Several factors can influence a company’s ROA, including asset management, cost control and revenue generation.

","

Companies that efficiently manage their assets tend to have higher ROA figures. Additionally, businesses that keep their operational costs low while maximizing revenue will typically see a positive impact on their ROA. ROA can vary significantly across different industries due to the nature of asset utilization and capital intensity.

","

How Return on Assets Ratio is Calculated

","

Calculating ROA calls for two figures: net income and total assets. The formula is:

","

ROA = Net Income / Total Assets

","

Net income is the profit a company earns after all expenses, taxes and costs are deducted from total revenue. Total assets include everything the company owns, such as cash, inventory, property and equipment.

","

Dividing net income by total assets yields a percentage that indicates how much profit is generated for each dollar of assets. For example, a company with $2 million in net income and $20 million in assets has an ROA of $2 million / $20 million = 10%. This means that for every dollar of assets, it generates 10 cents of net income.

","

A higher ROA indicates that a company is more efficient at converting its investments into net income. For investors, a high ROA can signal a potentially profitable investment, as it suggests that the company is effectively managing its resources.

","

A low ROA, on the other hand, might indicate inefficiencies or challenges in asset utilization, prompting further investigation into the company’s operations. It’s important to compare the ROA with industry averages, as different sectors have varying asset structures and profit margins.

","

Several factors can influence a company’s ROA. Industry type plays a significant role, as asset-heavy industries like manufacturing may naturally have lower ROAs compared to service-based industries.

","

Additionally, economic conditions, management strategies and technological advancements can impact how assets are used. Companies that continuously innovate and streamline operations often see improvements in their ROA, reflecting better asset management.

","

ROA vs. Return on Equity (ROE)

","

","

ROA and return on equity (ROE) are both ratios used to assess a company’s profitability and efficiency. While ROA measures how effectively a company uses its assets to generate profit, ROE evaluates how well a company uses shareholders’ equity to produce earnings. Both metrics provide valuable insights, but they serve different purposes and can tell different stories about a company’s financial health.

","

ROA offers a broader view of how well a company is using all its resources, including debt and equity, to generate earnings. ROE focuses specifically on the returns generated from shareholders’ investments. This distinction is important for investors who want to understand how a company is leveraging its financial structure to maximize returns.

","

Debt plays a significant role in differentiating ROA from ROE. Companies with high levels of debt may have a lower ROA because the total assets are derived from both equity and debt.

","

However, debt-laden companies might still report a high ROE if they are effectively using borrowed funds to boost profits. This leverage effect can make ROE appear more favorable, even if the company’s overall asset efficiency is not as strong. Therefore, investors generally consider both metrics in conjunction with examining a company’s debt levels.

","

Limitations of the ROA Ratio

","

One significant limitation of the ROA ratio is its variability across different industries. Companies in asset-heavy industries, such as manufacturing or utilities, typically have lower ROA ratios when compared with those in asset-light sectors like technology or services. This discrepancy can make it challenging to compare companies across different industries using the ROA ratio alone. Investors should consider industry-specific benchmarks and context when evaluating a company’s performance through this metric.

","

Another limitation arises from the way assets are valued on a company’s balance sheet. The ROA ratio relies on the book value of assets, which may not accurately reflect their current market value. This is particularly relevant for companies with significant intangible assets, such as patents or trademarks, which might be undervalued or not fully captured in the balance sheet.

","

ROA is inherently a short-term measure, reflecting a company’s performance over a specific period, usually a fiscal year. This focus on short-term results can overlook strategic investments that do not immediately contribute to profitability but may drive future growth. Companies investing heavily in research and development might show a temporarily lower ROA, for example, without indicating poor management or inefficiency.

","

Bottom Line

","

","

The return on assets (ROA) ratio provides insight into how effectively a company is using its assets to generate profit. By calculating ROA, investors and analysts can compare the profitability of companies within the same industry, offering a clearer picture of which businesses are maximizing their resources. ROA is just one of many financial metrics, such as return on equity, that are used in analyzing and assessing companies and investments.

","

Investment Planning Tips

","$66","

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Futures trading strategies offer ways for investors to profit from market trends and price movements. Traders can speculate on price directions, manage risk, or hedge investments. Common strategies include going long for rising prices, going short for falling prices, spread trading for price differences, and arbitrage for market inefficiencies. Each strategy carries risks, so investors […]

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","

1. Going Long

","

Taking a long position in futures trading means buying a contract with the belief that the asset’s price will increase by the contract’s expiration date. This strategy is suitable for traders who expect the asset’s value to rise based on market indicators or external factors.

","

As an example, let’s say an investor predicts that the price of crude oil will rise due to an anticipated production cut. They purchase a crude oil futures contract at $70 per barrel, locking in that price with the expectation that it will climb in the coming months. If the price rises to $80 per barrel by the contract’s expiration, the investor can sell the contract at this higher rate, earning a $10 per barrel profit.

","

A specific strategy known as breakout trading seeks to capitalize on significant price movements by entering trades when prices move outside established support or resistance levels. For long strategies, an upward breakout suggests an opportunity to enter a trade as a sustained upward movement may follow.

","

Going long can increase returns with leverage, but it also increases the risk of losses if prices drop. To manage risk, some investors use stop-loss orders, which automatically close their position when prices hit a certain level.

","

2. Going Short

","

Going short, or selling a futures contract, is based on the expectation that the asset’s price will decrease. This strategy is useful when market indicators suggest a potential downturn, allowing traders to profit if the asset’s price falls by the contract’s end.

","

Suppose a trader expects corn prices to drop due to a forecasted surplus from a strong harvest season. They sell a corn futures contract at $6 per bushel. If the price drops to $5 per bushel by the contract’s expiration, they can repurchase the contract at this lower price, pocketing a $1 per bushel profit.

","

Short positions carry the risk of unlimited loss if the asset’s price unexpectedly increases. To mitigate this, some traders set stop-loss orders to exit the trade if prices rise above a certain level, helping to control potential losses.

","

3. Spread Trading

","

","

Spread trading involves taking simultaneous long and short positions on related assets to benefit from the price differential, or spread, between them. This strategy works well for traders looking to profit from relative price movements without being exposed to the full volatility of a single asset.

","

Consider an investor who believes that heating oil prices will rise faster in the near term compared to crude oil due to seasonal demand. They enter a “crack spread” by buying a heating oil futures contract while simultaneously shorting a crude oil contract. If heating oil prices increase and crude oil prices remain stable, the spread between the two widens, allowing the trader to profit.

","

Another form of spread trading is a “calendar spread,” where the trader buys and sells contracts on the same asset with different expiration dates. For example, a wheat trader might buy a July futures contract and sell a December contract, expecting that the near-term price will rise relative to the later price. Success in spread trading requires knowledge of seasonal and market factors that affect price differentials.

","

4. Arbitrage

","

Arbitrage seeks to take advantage of minor price discrepancies between markets or exchanges, where a trader simultaneously buys and sells the same or similar futures contracts. Though typically used by institutional investors, individual traders with access to fast trading platforms may also employ this low-risk strategy.

","

Arbitrage requires precise timing and is often conducted by high-frequency trading systems. While generally low-risk, arbitrage can involve significant capital and specialized software, as well as rapid market access to capture these fleeting opportunities.

","

As an example, let’s say a gold futures contract is trading at slightly different prices on two exchanges – say $1,500 on one and $1,505 on another. An arbitrageur buys the contract on the lower-priced exchange while selling it at the higher price on the second exchange. By locking in the $5 difference per unit, they secure a low-risk profit, as long as the transactions are executed quickly enough before the discrepancy disappears.

","

Bottom Line

","

","

Futures market trading strategies provide different opportunities for investors to engage in financial markets, including speculation, hedging and exploiting price inefficiencies. Knowing the risks of each strategy could help traders choose approaches that fit their financial goals and risk levels.

","

Investment Planning Tips

","$7e","

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