NNN, NOI, and Cap Rate are three of the most important metrics in U.S. commercial real estate investing. Whether you’re reviewing a retail, office, or mixed-use property, these numbers determine how cash flow, risk, and valuation are assessed.
For foreign nationals and first-time U.S. investors, misunderstanding these terms can lead to overpaying for a property or misjudging its true return. This guide explains what NNN, NOI, and Cap Rate actually mean, how they are calculated, and why they matter when evaluating U.S. real estate investments.
Why NNN, NOI, and Cap Rate Matter When Evaluating U.S. Properties
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.
America Mortgages 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
Frequently Asked Questions
Q1: What does NNN mean in real estate?
A: NNN stands for Triple Net Lease. It means the tenant pays for the property taxes, insurance, and maintenance so the landlord has fewer expenses and more predictable income.
Q2: What is NOI, and why does it matter?
A: NOI (Net Operating Income) is the money a property earns after subtracting all operating costs like insurance, taxes, utilities, and maintenance.
It helps investors understand how profitable a property really is.
Q3: How do you calculate the Cap Rate?
A: The Cap Rate shows how much return you might get from a property.
The formula is simple:
Cap Rate = NOI ÷ Property Price
It’s a quick way to compare investment properties.
Q4: Why is the Cap Rate important for investors?
A: Cap Rate helps investors see if a property is a good deal.
A higher cap rate usually means higher potential return (and sometimes higher risk), while a lower cap rate means a more stable but slower return.
Q5: Why do many investors like NNN lease properties?
A: Investors like NNN properties because the expenses are mostly covered by the tenant.
This means the landlord enjoys steady income, fewer surprises, and easier calculations for NOI and Cap Rate.
