Investments in pre-leased properties have been on the rise in recent years in India. Investing in commercial pre-lease property is gaining more preference from corporate houses, entrepreneurs & serial property investors. But what is a pre-leased property? Here’s the answer to this million-dollar question.
A preleased property is one which already has a tenant and thus ensures a fixed income. Apart from this, a pre-leased property holds certain other benefits like higher capital appreciation and zero waiting period. While purchasing a pre-leased property, the buyer is guaranteed ROI right from the start. Also, the investors earn rental income other than the capital appreciation on the property.
When someone thinks about investing in a pre-leased property, they are basketing ample benefits. Right from an immediate ROI to possible capital appreciation in the future, the list of benefits of investing in a pre-leased property is long. Currently, there is a huge market for pre-leased property is huge in metro cities. When investing in a pre-leased property, the investors look for properties which have a better capital appreciation.
Benefits of Pre-Leased Properties include the following:
No Waiting Period:
When you invest in the preleased property, you don’t have to wait to receive an ROI. This is because the property is already leased and producing a monthly rental income. Thus, the investments start the very next day once the lease is transferred.
Capital Appreciation:
It is true that the value of pre-rented increases over time. The investor is in benefits if the location is in a prime location with good infrastructure and amenities. These factors will fetch a much higher capital appreciation. Usually, the investors keep a large time horizon to gain a better capital appreciation on the preleased properties.
Assured Income:
In a preleased property, once the investor gets the lease transferred on him/her, tenants and their monthly revenue also get transferred. This brings in a guaranteed fixed revenue each month.
Easy Liquidity:
Real estate, otherwise have very limited liquidity, which might take months or years to get sold out. However, when investing in a preleased holds the benefit of earning a consistent rental revenue- which makes it a liquid investment.
Rental hike:
The investor doesn’t have to worry about rental growth. The rental increases with the periodic agreement renewals.
Lower risk:
While investing in a pre-leased property, the investor faces quite fewer risks as they get a guaranteed income along with a good return. Also, the chances of tenants vacating the property before the agreement expiry is minimal.
However, taking professional advice is always the best option before choosing a pre-leased property. Make sure to check the lease duration, tenant details and property values in the locality before placing the money. If investor plays his/her card right, they can their investments into reward in the future.
How much one can earn from a pre-rented property? While the investment in such properties has inclined, many people are curious about the return they can fetch from these properties. On average, the commercial pre-leased property provides an ROI of 9%-15%, while residential properties give 3%-6%. Banks provide loans up to 90% of the value for a pre-leased commercial property. This is one of the main reasons why high net worth individuals prefer to invest in pre-leased properties. Not only the high net worth individuals but also ones with limited resources can invest in the pre-leased properties as the loans are more affordable and thus one can avail of a term loan at a quite low-interest rate. This also allows the investor to raise capital based on the discounted value of the rentals and the underlying property value.
When one invests in a successful commercial property, it comes with a negligible risk associated with the factors like land, approval, delays in construction etc. With recent regulatory initiatives like RERA, GST, and REITs resulted in high transparency. This also is to boost the commercial property demand which makes it a lucrative investment choice.
Another major benefit of the preleased property is becoming more comforting in the longer duration and doesn’t need much attention. Thus this becomes the best option for people who look for a side investment.
The popularity of pre-leased properties has been on the incline post demonetization. The incline is not only with the national investors, but also high net worth foreign investors investing in these assets. When the owner decides to exit, he/she would have earned an equity value along with the capital appreciation on the escalated rents. Thus the investor can earn a return ranging anywhere from 16%-20% annually from the pre-rented commercial properties. The above-mentioned points make this asset a feasible option for investors. Looking at the market trends, we can say that the demand for this investment option will grow at a promising pace and thus continue to give a stable standard return and better capital appreciation in the long run.
