Have you heard that real estate is a profitable investment? Well, it surely is, but it is actually a great hassle to find out the profitable real estate investments. And more than that, it is challenging to find an investment opportunity that can prove to be a lucrative long term asset and promises a bright future. While investing in commercial real estate, the difficulty of finding reliable tenants will consistently be in your mind. And what if you found a reliable tenant but the profits are not up to your expectations?
In order to tackle the above issue, there has been a tremendous shift in real estate investors being highly attracted to pre-leased commercial properties. In case you are wondering about what pre-leased properties are and if they are a part of commercial real estate or residential real estate, then this article will help you understand everything about pre-leased properties. Also, by the end of this article, you will learn why pre-leased real estate is a good investment option!
Meaning of Pre-Leased Properties
Pre-leased properties are those properties that already have tenants and ensure assured returns or fixed income. Such properties come with a handful of advantages that involve regular income flow, higher capital appreciation, zero waiting periods and much more.
Pre-leased properties are now becoming popular, especially in the commercial real estate market. In simple words, pre-leased properties are the ones that are already leased out to someone at the time of sale, and the real estate investor continues with the lease to earn fixed returns.
As per research, Ultra-High-Net-Worth-Individuals (UHNIs) prefer investing in Grade-A pre-leased properties. This is because such properties offer fixed income from high-quality tenants, and the real estate investors can later exit the market with significant capital appreciation. However, the capital growth rate will be subjected to the market scenario and holding period.
If we talk about commercial real estate in India, the commercial properties mainly come in freehold and leasehold types. Most pre-leased commercial real estate deals take place in the freehold segment in India.
Before investing in pre-leased properties, you must take into consideration a list of things that involves:
1 Buyers must review the price difference between vacant commercial properties and pre-leased properties and decide accordingly.
2 Investors must assess the quality of tenants involving their credit history and financial position to make sure that they pay the rentals on time.
3 Checking the lease duration is a must because finding new tenants is time-consuming. Make sure that the lease is for a longer term.
Why Invest in Pre-Leased Properties?
Pre-leased properties in India come with plenty of investment benefits that involve:
1. Capital Appreciation: The value of pre-leased properties usually increases handsomely against vacant properties. The properties in prime locations with excellent amenities and infrastructure might also offer great appreciation. Therefore, the buyers with a longer investment horizon might benefit from considerable appreciation in capital values.
2. Assured Monthly Income: When the real estate investor gets the lease transfer on the commercial property, the legal right to receive the rentals on a monthly basis is a part of the deal. Thus, pre-leased properties ensure assured and fixed rental income with each passing month.
3. Zero Waiting Period: Real estate investors don't have to wait for a certain period of time in order to earn returns on pre-leased properties. These properties already have tenants, and investors can immediately start earning rentals on a monthly basis after the successful transfer of the lease deed.
4. High Liquidity: Another benefit of investing in pre-leased properties is high liquidity. While finding a potential buyer might be difficult in the real estate market, pre-leased commercial properties are comparatively easy to sell. Many real estate investors prefer these assets, thus ensuring higher liquidity.
5. Rental Hike: Buyers do not have to worry about rental growth with pre-leased property investments. Agreement renewals related to pre-leased properties ensure periodic rental increases.
6. Lower Risk: Lower risk is another great advantage of investing in pre-leased properties. The reason behind lower risk is that pre-leased properties offer handsome returns and guaranteed income. The chances of tenants vacating such kinds of properties before the expiry of the tenure are always less.
7. Rental Discounting Facility: Last but not least, lessors can apply for term loans at a low rate of interest against the rental income of their pre-leased commercial property. This, in turn, will help lessors raise more money on the underlying property value and the discounted value of the monthly rentals.
Here, we come to an end of this article. If you ask us, we suggest you take professional advice before choosing or investing in a pre-leased property. Also, make sure to check the details of the tenant, lease duration and property values of similar real estate in that particular area before investing your hard-earned money. If you play right, pre-leased properties can definitely turn into promising and rewarding investments in the future.