Common Terms in Commercial Real Estate Investing

We've compiled the following short list of terms you are likely to encounter in commercial real estate investing.

Questions? Suggestions? Comments? Contact us.

1031 Tax Deferred Exchange

The term 1031 exchange refers to a section of the Internal Revenue Code dealing with Tax deferred exchanges. This code provision states that property owners can sell their Investment property and then reinvest those proceeds in another property without incurring a taxable incidence at the time of sale. [read more ...]

NNN Lease

Tenant is responsible for all CAM, Taxes, and Insurance. Landlord responsible for roof & structure, occasionally parking.

Absolute NNN Lease

Tenant is responsible for all expenses including roof & structure. However, Lease can be cancelled for certain acts of god.

Bond Lease

Same as Absolute NNN except Tenant is responsible for everything and under no circumstances can Tenant cancel the lease.

Gross Lease

Tenant pays only Base rent. Landlord is responsible for all expenses.

Modified Gross Lease

Same as Gross Lease except expenses designated in the Lease. In addition, some Gross Leases have expense stops. In these cases tenants pay all expenses above a preset number.

CPI Increases

Some leases contain rental increases during the term of the lease. These increases can be either fixed specified amounts or they can be variable (CPI) based on cost of living indexes specified in the lease. These usually have annual and Total limits.

N.O.I.

Net Operating Income = Income after any operating expenses and any reserves

Cap Rate

N.O.I divided by the Purchase Price Indicates yield on a non-leveraged purchase

COC (Cash-on Cash)

N.O.I minus Debt Service divided by the down payment. Indicates yield on cash invested. (COC = Cap rate on non-leveraged purchase)

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