Pre-Leased Commercial Property
When considering investment in real estate, finding a secure and profitable investment opportunity is crucial. Moreover, when considering investing in commercial property for rental income, finding a dependable tenant is always a big challenge, and sometimes you need help finding a suitable tenant who can pay as you expected. That’s why pre-leased or pre-rented properties are booming quickly and attracting many real estate investors.
What is Pre Leased or Pre Rented Properties
Pre-rented or pre-leased commercial properties already have tenants and have fixed rental income. The main benefits of these properties are regular income, zero waiting periods, and higher capital appreciation. Pre-leased properties are the ones that are already leased out at the time of sale and are already getting rent from the tenant. The investor continues with the lease to earn steady returns.
Advantages of Pre-Leased Commercial Property
Zero Waiting Period for Investor
When an investor buys a pre-leased commercial property, he also inherits the rentals and tenants from the previous owner. In pre-leased property, investors do not have to wait for a tenant as it is already rented. Investors can start earning monthly rentals right from the first day after the transfer of the sale deed.
So, the investor has no waiting period to find a suitable tenant for the property.
Capital Appreciation
A pre-leased commercial property has a decent scope of capital appreciation over time as the values of pre-leased properties usually increase compared to vacant properties. Commercial properties in prime areas with good locations, features, amenities, and infrastructure may get higher appreciation. Most of the time, buyers with a longer investment horizon may get a good appreciation on their investment.
High Liquidity
Pre-leased commercial property is a lucrative option from the perspective of return on investment. So, while finding a potential buyer may be challenging in the real estate market, pre-leased commercial properties are easy to sell. Many investors prefer pre-rented properties, thus ensuring higher liquidity.
Lower Risk
Buying a pre-leased commercial property is always a safe investment, as the property is rented for a specific time. Investors face lower risks in pre-leased properties as they offer a guaranteed rental income with good returns. Usually, the lease agreement is for nine years, and there is also a three-year lock-in period. The chances of tenants vacating these properties before the expiry of the agreement are always meager.
Rental Hike
In pre-leased properties, buyers do not have to worry about rental growth. Lease agreement renewals also ensure periodic rental increases. If there is a nine-year lease agreement, then 15% of the rent will be increased every three years most of the time. For if you are getting rent of Rs 50,000 per month for the first three years, after a 15% increase in rent, you will get Rs 57,500 for the next three years, and after six years with a 15% increase in rent, you will get a rent of Rs 66,125 per month.
Loan Against Rental Income
An investor can apply for term loans against the rental income of their pre-leased property, which can help investors raise more money on the underlying value of their commercial property.
Precautions While Buying Pre-Leased Commercial Property
Before investing, the buyer should do all the due diligence to ensure that the property and its tenant are safe to inherit. There are also some concerns that investors should address before investing in any pre-leased property.
Higher Capital Value
The buyer needs to determine the vacant capital value of a pre-leased property, as the market value of the pre-leased property is always higher than the vacant property. Before buying, the buyer should review the price difference between these two properties and then decide accordingly. Ideally, the market value of the pre-rented property should be at most 15-20 % higher than a vacant property in that area.
The Credibility of a Tenant
The investor must assess the credibility and creditworthiness of the tenant before finalizing the deal. The main objective is to check that the tenant pays rent on time and should not vacate the leased premises before the expiry of the agreement term.
Lease Duration
An investor should also check the terms of the lease. Matching the commercial lease term is a must. Finding new tenants is always a time-consuming affair in the event of lease expiry. Ensure the lease is longer; otherwise, you can lose rentals and diminishing returns.
Conclusion
Professional advice is always the best option before choosing a pre-leased commercial property. If you have any queries or want the best pre-leased property deals, you can call me at 9811741277 or mail me at hello@vikasjoshi.in
Read: How Rental Income from Commercial Property Can Build Wealth
Frequently Asked Questions (FAQ`s)
What is a pre-leased property?
Pre-leased or pre-rented properties already have tenants and have fixed rental income. The main benefits of these properties are regular income, zero waiting periods, and higher capital appreciation.
Is it safe to invest in pre-leased property?
Buying a pre-leased property is always a safe investment, as the property is rented for a specific time. Investors face lower risks in pre-leased properties as they offer a guaranteed rental income with good returns.
What are the benefits of investing in pre-leased commercial properties?
- Zero waiting period for investor
- Capital appreciation
- High liquidity
- Lower risk
- Rental hike
- Loan against rental income