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Capitalization Rate (cap rate) – one of the primary methods of valuing income property:
- Cap rate = net operating income (which is gross income minus all property expenses, not including debt service) divided by the sales price
- Sales price = cap rate divided by the net operating income
- Net operating income = sales price times cap rate
Other commercial real estate financial factors to consider:
- depreciation schedule
- federal and state income taxes
- federal and state capital gains taxes
- financing structure
- cash on cash return
Commercial Real Estate books:
Commercial Lease Information:
Types of Commercial Leases:
- Full Service or Gross lease – base rent per sq. ft., utilities, maintenance, insurance, taxes are all included in the rate.
- NNN (triple net) – base rent per sq. ft. + tenant’s proportional share of maintenance, insurance, and taxes. Utilities are the tenant’s responsibility.
- Single Net – base rent per sq. ft. + proportional share of property taxes. Utilities are the tenant’s responsibility.
- Double Net – base rent per sq. ft. + proportional share of property taxes and insurance. Utilities are the tenant’s responsibility.
- Percentage – base rent per sq. ft. + a percentage of any revenue earned during business on the rental property. This is not very common but occurs primarily with retail stores.
- Modified Net – The modified net lease is a compromise between the gross lease and the triple net. The landlord and tenant usually set up a split of maintenance expenses, while the tenant agrees to pay taxes and insurance. Utilities would likely also be negotiated in the modified net lease. This type of lease might be used in industrial, retail or multi-tenant office properties.
- Modified Gross – tenant pays base rent at the inception of the lease but in subsequent years pays the base plus a proportional share of some of the other costs associated with the property, such as property taxes, utilities, insurance and maintenance.
