Real estate investing percentage rent workout. On the workout tab, we say calculate the percentage rent that a retailer must pay to the landlord in addition to the rent. So the annual rent is 125,000. The percentage rent assumption here is 5% and this would be a market-based thing. What other retailers are having to pay in similar markets, et cetera. And we have that retailer's annual sales. So based on these annual sales what would this retailer have to pay to the landlord? First thing we need to do is to calculate the natural breakpoint. The natural breakpoint is taking the annual rent and dividing it by the percentage rent.

Now we can calculate the percentage rent in actual dollars which is going to be the annual sales over the natural breakpoint times the percentage rent assumption of 5%.

Now, because this is really just a one-way payment meaning that the landlord will not reimburse the retailer for having sales below the natural breakpoint, we really should wrap this in a max. Now, in terms of the total payments to the landlord that's simply going to be the annual rent plus the percentage rent calculation. So to do this another way, basically for every dollar over the natural breakpoint of 2.5 million the retailer had to pay 5% to the landlord.