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FAQs

Basic Commercial Real Estate General Questions and Terminology:

What are N or NN or a NNN Leases vs Regular Lease?
N stands for “Net of.”  Each N means a different item.  “N” can refer to real estate taxes, maintenance, or property insurance. Some times referred to as net; net net, net net net, leases or net, double net and triple net leases. A NNN (triple net) Absolute lease is where the landlord has no responsibilities other than to collect the lease check every month.  These investments typically have a lower return and higher stability than other leases.  They are good for absentee owners, given it is the tenant’s responsibility to manage the property.

What is a CAP Rate and Why Should I Care?
A CAP rate is a valuation tool that uses a fixed formula to arrive at a value of a property based on current net operating income.  Basically, the value of a property would be the net operating income, divided by a cap rate.  A cap rate can also be derived by dividing the net operating income by the sale price.  The CAP rate is calculated and referenced in a percentage basis. For example, a “7 CAP” means that the cap rate is 7%.

What is IRR Different than Cap Rate?
IRR is the internal rate of return of an investment.  It takes into account other factors that the CAP rate does not, such as leverage or mortgages.  It is ultimately the cash on cash return of a person’s investment.

Sell vs Hold Analysis
An analysis done to help property owners identify whether it is better to sell the asset at a particular time or hold it for a specified period of time, depending on the owner’s needs.

Rent vs Purchase vs Develop Analysis
This analysis helps tenants determine whether they are paying more in rent than what they could own the property for.  In essence, if you could own a property, why not consider buying a property that will cashflow the same or close to the same, while paying down your own mortgage instead of a landlord’s.

Time Value of Money Calculations
“A Dollar saved is a Dollar earned” unless that dollar is being held without “working.”  What this means is that a Dollar today is worth less than a Dollar in 10 years if that Dollar is not invested in a manner that keeps up with inflation.

Realtor’s Commercial Alliance Glossary of Commercial Real Estate Terms