Why you should invest in pre lease property ?

What is Pre-Leased Property?

Pre-leased properties have become a hot and trending topic in the industry, especially in the commercial arena. In layman's terms, a pre-leased space is a property that is already leased out to tenants when its sale goes live, and investors begin to earn steady returns as the lease continues. Many high-value investors go for this, as it ensures high and steady returns as well as high-quality tenants. Along with this, investors have the option to opt-out of the market once their capital has appreciated.

Benefits of pre-leased property:

Low waiting period: Pre-leased commercial properties have negligible-to-zero waiting periods on returns. Tenants have already occupied the space, and investors earn monthly rent immediately as soon as the lease deed is handed over.

Rental hikes: 

Whenever a tenant decides to renew their lease, there is an increase in their rent, along with which the investor's return also increases. The approximate annual yield on a pre-leased commercial space is said to be around 6% to 8%.

Lower risks:

Investors are guaranteed their monthly returns as part of the lease transfer agreement. Hence, there are assured and fixed returns on these properties each month. The lease agreement usually has a duration of 3 to 15 years, and tenants.

Capital Appreciation: 

Pre-leased properties have the potential for a higher valuation as compared to those that lie vacant. If the unit is situated in an area with great infrastructure and amenities, the valuation goes up much faster, thus benefiting those buyers who wish to invest for the long run. There are also tax benefits for the investors if they choose this route, since the appreciation is done after considering inflation. This reduces the overall taxable income for the investor.

High liquidity or instant cash flow: 

 There might be difficulty in finding interested parties in the real estate industry, but pre-leased properties have a higher potential for being sold quickly. Transactions for these assets are much quicker and at higher values.

Loan benefits:

 One can opt for lease rental discounting (LRD) when renting out a pre-leased commercial property. These are usually taken against the rental receipts of the property and offer the investor a lot of benefits. The loan can be paid using the rent received from the tenants, and as an investor, you do not have to spend a single penny. This loan can also be used to upgrade the property and help increase its already high value.

These pros and cons might appear to be very simple to understand, but this industry can fluctuate in an unpredictable manner. One misstep can lead to a huge negative impact on your portfolio. Because of the risk involved, it is advisable to find the right portfolio consultant, who will keep your interests in mind and advise you from the required point of view. Once you get a clear understanding of the industry and the gains and risks of investing, your portfolio can bring you profits with huge margins. Ensure that you understand the terms and conditions, as well as the market trends, and get started investing with the right advisor by your side!

Along with these pros, there are also a few points that need to be considered before going all-in on the investment. These factors are usually common in any property-leasing agreement, but keeping them in mind helps create an ironclad deal. Location and price per square foot of the property are important factors to keep in mind when deciding on the property's value. The lock-in period for tenants can also help investors earn a good amount from monthly rentals. Efforts to vacate the premises before the lock-in period's maturity can lead to penalization from the owner.


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