If you’re new to commercial real estate investing in the USA, you’re probably running into a lot of unfamiliar terms and acronyms. It can feel like learning a new language—but don’t worry, it’s simpler than it seems.
Three of the most common terms you’ll see in listings are NNN, NOI, and Cap Rate. Here’s what they really mean—and why they matter.
Let’s start with NNN.
This stands for Triple Net Lease, and it refers to a lease structure where the tenant, not the landlord, pays for three key property expenses: property taxes, building insurance, and maintenance / management costs. These are often referred to as the “three nets.” So, when you see “NNN lease,” it means the tenant is covering those costs, which leaves the landlord (you) with fewer ongoing expenses.
It’s also worth noting that these three costs are listed in order of priority. You can sometimes delay maintenance (not recommended), but you can’t delay paying property taxes. If you do, the county could take and sell your property to recover what’s owed.
Next is NOI, which stands for Net Operating Income.
This is one of the most important numbers in real estate. It’s calculated by taking your total rental income and subtracting all of your operating expenses—including those NNN costs if you’re responsible for them. What’s left is your NOI. It tells you how much money the property is actually making before debt payments and taxes.
Finally, we have Cap Rate, or Capitalization Rate.
This is a quick way to estimate the return on a property. Once you’ve calculated your NOI, you can figure out the Cap Rate by dividing that number by the purchase price of the property. For example, if a property produces $100,000 a year in NOI and the purchase price is $1 million, the Cap Rate is 10%.
Cap Rate = NOI ÷ Purchase Price
This gives you a snapshot of how profitable a property is right now. It doesn’t take future changes into account, like increased rents or renovation costs. For long-term planning and forecasting, you’d use a different metric called IRR (Internal Rate of Return)—but we’ll save that for another post.
If you’re just starting out, understanding these three terms—NNN, NOI, and Cap Rate—can give you a major head start when evaluating commercial real estate opportunities.
We specialize in helping foreign nationals invest in U.S. commercial real estate, and we’re here to help you understand the financing process, the numbers, and the strategy behind each deal. We’re not just lenders—we’re active investors and developers ourselves.
So, give us a call and let’s talk about your next deal.
Lance Langenhoven
Head of Commercial Lending
