Real Estate Investment

What is Pre Leased Commercial Property and Its Benefits

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Many property buyers have invested in Pre-Rented Commercial Properties in Delhi, NCR, in the last two years. Due to the recent pandemic, everyone’s work has suffered, so many people are now looking for properties from which they can regularly get income. Although this phenomenon is witnessed more in the commercial real estate segment, pre-rented residential properties are also beginning to find buyers.

What Are Pre-Leased or Pre-Rented Properties

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 period, and higher capital appreciation. Pre-leased properties are the ones that are already leased out at the time of sale and getting rent from the tenant, and the investor continues with the lease to earn steady returns.

Advantages of Pre Leased Property

Zero Waiting Period for Investor

When an investor buys a pre-rented 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, and investors can start earning monthly rentals right from the first day after the transfer of the sale deed. So, there is no waiting period for the investor to find a suitable tenant for the property.

Capital Appreciation

A pre-rented property has a decent scope of capital appreciation over time as values of pre-leased property usually increase compared to vacant properties. Commercial property in prime areas with good location, features, amenities, and infrastructure may get higher appreciation. So, most of the time, buyers with a longer investment horizon may get a good appreciation for their investment.

High Liquidity

Pre-Leased property is a lucrative option from the perspective of return on investment. So, while finding a potential buyer may be a challenge 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-rented property is always a safe investment, as the property is rented for a specific duration of time. Investors face lower risks in pre-leased properties as they offer guaranteed rental income with good returns. Usually, the lease agreement is for nine years, and there is also three years lockin period. The chances of tenants vacating these properties before the expiry of the agreement are always meager.

Rental Hike

In pre-rented 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% rent will be increased every three years most of the time. Like 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.

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Some Precautions While Buying Pre Leased 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-rented property as the market value of the pre-leased property is always higher than the vacant property. Before buying buyer should review the price difference between these two properties and then decide accordingly. Ideally, the market value of the pre-rented property should not be more than 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 term of the lease. Matching the commercial lease term is a must. In the event of lease expiry finding new tenants is always a time-consuming affair. Ensure that the lease is for a longer term otherwise, you can face a loss of rentals and diminishing returns.

Conclusion

Professional advice is always the best option before choosing a pre-leased property. If you have any queries or want the best pre-leased property deals, you can call me on 9599705565 or mail me at hello@vikasjoshi.in.

Read: Best Commercial Projects for Investment in Delhi NCR

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