How to *Actually* Understand Your Investment Property's Income
A deep dive into the key components that create your cash flow: the types of rent you collect and the structure of the leases you sign.
Key Concepts at a Glance
Click through the tabs to explore the fundamental concepts of real estate income.
Contracted Rent
The actual dollar amount specified in the tenant's current, legally-binding lease agreement. This is your baseline income.
Market Rent
What a *new* tenant would likely pay for the same space *today*, based on what similar properties in the area are leasing for.
Anticipated Rent
Your projection or forecast of what you expect to collect, factoring in increases, vacancies, and potential concessions.
Percentage Rent
Common in retail, this is a fixed base rent *plus* a percentage of the tenant's gross sales above a certain breakpoint.
Overage Rent
The additional rent paid as part of a percentage rent agreement—the amount *over* the base rent generated from sales.
Surplus Rent
When the current *contracted rent* is *higher* than the *market rent*. This represents a future risk of income drop upon renewal.
The tenant pays one flat rental rate, and the **landlord is obligated to pay all or most of the property’s operating expenses** (taxes, insurance, maintenance). It's "all-inclusive" for the tenant but means less predictable income for the landlord.
A hybrid approach where the **tenant pays base rent plus a portion of the operating expenses**. This creates a more stable cash flow for the landlord by passing through some variable costs.
The tenant assumes **all expenses** of operating the property, including the "three nets": property taxes, property insurance, and common area maintenance (CAM). This provides the most predictable, hands-off income stream for an investor.
Constant Perpetual Stream
A steady, unchanging stream of income expected to continue indefinitely, like from a long-term NNN lease with a very stable tenant.
Constant Terminal Stream
A steady, unchanging income for a *fixed period*. A 10-year lease with a strong corporate tenant is a perfect example.
Variable Stream
The most common model, where income changes over time due to renewals, vacancies, or changes in operating expenses.
Reversion
Not a "stream," but the lump-sum payment you receive at the end of your holding period when you **sell the property**.
The Two "Returns" Every Investor Must Know
Understanding this difference is essential for knowing the true performance of your asset.
Return ON Investment (ROI)
This is your PROFIT.
It's the money you make *on top of* your initial capital. If you invest $100,000 and your profit for the year is $8,000, your ROI is 8%. This is your true cash flow.
Return OF Investment
This is getting your SEED MONEY back.
This is the process of getting your original capital back. You must get your initial investment back before you can truly say you've made a profit.