Cash flow: Cash flow refers to the actual amount of income a property generates after paying all of its operating expenses and mortgage/debt payments. This can be used to calculate cash-on-cash return of a property, which is cash flow as a percentage of the actual cash invested by the property owner.
Ground lease: A ground lease is a commercial leasing arrangement where the tenant leases land but owns the physical building on the land. For obvious reasons, ground leases typically have very long lease terms with options for the tenant to renew -- in fact, a 99-year lease term isn’t unheard of with a ground lease.
Full service lease: This term's precise meaning depends on who you ask, but at a minimum, a full-service lease refers to a gross lease where the owner pays the operating expenses of a property. In some cases, a full service, or fully serviced, lease means that the landlord covers certain other expenses, such as cleaning services, which is quite common in office leases.
PSF rent: Commercial real estate property rental rates are often quoted on a per-square-foot, annual basis. In other words, a rental rate of $10 PSF implies that a 1,000-square-foot space would cost $10,000 per year in base rent, or about $833 per month.
Debt service coverage ratio (DSCR): This is a popular metric used by commercial lenders and is the ratio of the property's net operating income divided by total debt service obligations. As a basic example, if your property generates $200,000 in NOI and you have to pay $100,000 in annual mortgage payments, your DSCR would be 2.0 -- the NOI divided by your debt payments.
Class A properties: Property classification is something you'll need to know when investing in commercial real estate. Class A is typically used to describe properties that are in great condition and are well-located, while Class B and Class C real estate is used to refer to somewhat lower-quality properties.
Commercial real estate is very different than residential
If you've primarily invested in residential real estate, making the leap to commercial property investing can be quite a challenge. As you can see in this article, even the language used in commercial real estate is quite different. So, be sure to learn all you can about commercial real estate investing and how to evaluate investment opportunities before you start shopping for your first commercial investment property.