Glossary of Commercial Real Estate Terms


CAP Rate (Capitalization Rate) - Stated as a percentage that relates to the value of an income-producing piece of real estate to its future income. CAP rates are calculated by dividing the NOI by the purchase price, and are the accepted standard for comparing various potential investments.

Disqualified Persons - People identified in the IRS Code who cannot be involved in your IRA investments. You are a Disqualified Person in your own IRA. Others include your spouse, your children, any ancestor, etc.

Foreclosure - Refers to properties that have been, or are in the process of being, forecosed on by a lender due to nonpayment on a loan. Foreclosure properties can often be purchased prior to actual foreclosure through what is referred to as a Short Sale.

Leverage - To borrow against a real estate investment to incease its ROI by earning additional profits above the cost of the borrowed fund.

LLC (Limited Liability Company) - An LLC is simply a corporation, but is a relatively new type of company that is generally accepted as the best vehicle for owning real estate. As indicated by its name, an LLC limits the owner's personal liability (or in this case the IRA's liability) from lawsuites, etc., because it is a separate entity.

NOI (Net Operating Income) - The potential rental income plus other income, less vacancy, credit losses and operating expenses on a piece of real estate.

NNN (Net Net Net Leased) - Often referred to as a triple-net lease. A lease under which the Tenant is responsible for all costs related to the property, including real estate taxes, insurance and repairs.

Property Manager - A third-party company that maintains and leases rental property for the owner for a fee. A Property Manager is a necessity with IRA Real Estate investments because the IRA owner cannot directly manage properties in his or her IRA.

Real Estate Development - The process of purchasing raw land, designing and building investment properties and leasing them out. The Developer often takes the project through the lease-out stage and then sells it to investors for a profit.

ROI (Return on Investment) - The total of all cash received (returned) from an investment, which may consist of rents, proceeds from a sale or from the sale of a portion of one's interest in a piece of property.

Self-Directed IRA - An IRA that works like any other IRA, but allows you to invest your funds in any type of investment you want to, including stocks, real estate and precious metals.

Short Sale - The process of purchasing a piece of property, although still owned by the borrower, through a contract agreed to by the lender, usually at a price less than the amount owed on the property but agreed to by the lender.