How many times in the recent past you may have come across the term “Preleased Properties”??
Preleased properties are trending now as they provide security to an investor by indemnifying them against the initial downtown before the property is leased after purchase and provides insulation against the expected/unexpected market lows.
The ultimate value of a commercial property is exuded by the rental flow it generates, thereby reflecting its market value by indicating the price the market is willing to pay for the use of space.
A pre-leased property is one which is sold after it has already been leased out to a tenant. Once you invest in a preleased property, you start benefitting from your investment from day 1 in the form of the rent received from the tenant without the downtime and hassles of listing your property for lease in the local market. The major factor influencing these transactions is the Rental Yield which reflects the guaranteed Return On Investment(ROI).
The Return On Investment in these properties is usually in the range of 7%-13%. The major parameters on which the ROI depends are:
- Type of property
- Type of tenant
- Demand and Supply
Retail properties i.e Showrooms and Shops which usually have Banks, ATMS,Leading brands etc as their tenants yield around 7%-8% while Offices in Commercial/IT/SEZ buildings yield higher in the range of 8%-12%.
Two terms which are very important and often mistaken while evaluating a pre-leased property are :
Gross Rent : Gross Rent can be defined as the total rent paid by the tenant to the landlord which is inclusive of Property taxes, Common Area Maintenance(CAM).Utility charges in most cases is not a part of the Gross Rent.
Net Rent : Net Rent can be defined as the rent received by the landlord after deducting the Property taxes, Common Area Maintenance(CAM) and any other property related expenses incurred by the landlord.
While calculating the Return on Investment (ROI), Net Rent is taken into consideration.
Preleased properties have various advantages over other forms of Real Estate Investments like Zero waiting period, Tax saving, Stable Cash flow, eligibility for LRD to name a few.
To understand Pre Leased investments in details in terms of its advantages, How to calculate ROI, Selection of a Pre Leased property and Advantages of Preleased Investments over other forms of Real Estate Investments, please go through Pre Leased Investments : The Basics.