Net Lease

A net lease makes the tenant pay some or all of the property's operating costs on top of base rent. In a triple net (NNN) lease the tenant covers taxes, insurance and maintenance, so the landlord's NOI is close to the rent itself and the cap rate is easy to read.

Single-tenant net lease properties, such as a pharmacy or fast food building, are priced almost entirely on cap rate. If the tenant pays $40,000 a year in NNN rent and buyers want 6.5%, the building trades near $615,000. The main questions are the tenant's credit and how many years remain on the lease.

Residential rentals are almost always gross leases, where the owner pays taxes and insurance. That is why a house and a net-leased store with the same cap rate are not the same investment: the store's NOI is contractual, while the house's depends on the owner controlling expenses.