Under a triple net lease, the tenant typically pays:
Correct Answer
B) Base rent plus taxes, insurance and maintenance
Why this is correct: A triple net lease (NNN) is a standard commercial lease structure where the tenant pays the base rent plus the three major property operating expenses: property taxes, property insurance, and all maintenance costs. This makes the landlord's income largely 'net' of these variable expenses, which is a critical concept for income capitalization analysis. Why the other choices are wrong: 'Only the base rent, with the landlord covering all costs' describes a gross lease, the opposite of a net lease. 'A percentage of gross sales in place of any base rent' describes a percentage lease, common in retail, which may or may not be combined with a net structure. 'Base rent plus the landlord's mortgage debt service' is incorrect; debt service is a financing cost for the landlord, not a standard operating expense passed to a tenant under a triple net lease. Exam tip: Remember the three 'nets' in 'triple net': Taxes, Insurance, and Maintenance (often remembered as TIM).
Why This Is the Correct Answer
Why this is correct: A triple net lease (NNN) is a standard commercial lease structure where the tenant pays the base rent plus the three major property operating expenses: property taxes, property insurance, and all maintenance costs. This makes the landlord's income largely 'net' of these variable expenses, which is a critical concept for income capitalization analysis. Why the other choices are wrong: 'Only the base rent, with the landlord covering all costs' describes a gross lease, the opposite of a net lease. 'A percentage of gross sales in place of any base rent' describes a percentage lease, common in retail, which may or may not be combined with a net structure. 'Base rent plus the landlord's mortgage debt service' is incorrect; debt service is a financing cost for the landlord, not a standard operating expense passed to a tenant under a triple net lease. Exam tip: Remember the three 'nets' in 'triple net': Taxes, Insurance, and Maintenance (often remembered as TIM).
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A property's other income includes parking, laundry and storage fees. These are added:
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An appraiser estimates the reversion value for a retail strip center using a terminal capitalization rate of 7.0%. The estimated net operating income for the year following the holding period is $322,000. The appraiser then discounts the reversion to present value using a yield rate of 8.2%. What is the present value of the reversion if the holding period is 7 years?