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Benefits of investing in pre-leased commercial properties
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Benefits of investing in pre-leased commercial properties

By Dhaval Shah·May 16th, 2022

Nowadays, finding a profitable and secure real estate investment opportunity is crucial. Moreover, when it comes to commercial property, finding dependable tenants is always a challenge. What if you don't find a suitable tenant or one who pays you as much as you expected? Among various types of real estate properties, the demand for pre-leased property is also booming at a slow but significant pace. The benefits that come along with pre-released commercial properties have managed to attract many real estate investors.

With that being said, PropReturns have prepared this comprehensive guide which features a few benefits of owning pre-leased commercial property. However, before that, we would like to give a brief overlook of what is a pre-leased property.

What is a pre-leased property?

A pre-leased property is one that has been sanctioned to an organization and then sold to a consumer, complete with the lease. The buyer of that pre-rented property is guaranteed a return on investment from the first day, commonly known as a rental income, because the rent deed is also transferred to their name along with the property, giving them the legal right to receive the lease rentals.

In a nutshell, a preleased commercial property is leased to a tenant and then sold in the market. After the sale, the lease is transferred to the new owner who then gets a legal right to receive the lease rents subsequently.

Now, let’s move further! As mentioned earlier that pre-leased property offers a host of benefits you can enjoy, here are a few:

Build good leverage -

Many commercial real estate investors invest through leverage. The buyer simply puts down a cash deposit and then pays the seller with a mortgage loan (money borrowed from other individuals). Leverage works to your advantage when real estate values rise. With an increased leverage ratio, the borrower can enjoy a reduction in the likelihood and adverse effects of a banking crisis.

Guaranteed Returns on Investments -

The most significant advantage of having a rented property is that you don't have to wait to start profiting from it. The promise of profit from the first day may appear to be a marketing trick, but it is genuine if you buy a commercial space that has already been rented. It eliminates the time spent looking for tenants as well as the effort involved in locating a good lease. In addition, a leasing agreement has already been signed, with the possibility of an extension. As a result, an investor won't have to deal with the paperwork or negotiations. With the benefit of no waiting period, you can start earning a constant income as soon as you become the owner. The agreement specifies that the rent will increase on a regular basis in accordance with market inflation. It also corresponds to the property's expected capital appreciation.

There is no property maintenance -

Maintaining a commercial property, which is often much larger than a residential one, is difficult. If it isn't leased, an investor must get it cleaned on a regular basis for show purposes in order to attract tenants. To keep it clean and sanitary, an investor will need to engage professional cleaners or janitors. Additionally, while it is not rented, the investor will be responsible for the energy and water bills, which will add to the expense of maintenance. However, when an investor opts for a pre-leased commercial property, the tenant is responsible for making sure that the property is well maintained.

Ease of obtaining funds from banks and lenders -

If an investor is seeking for a loan to buy a commercial property for sale, they need to supply all of the project's information. The returns on investment will be a major issue for most moneylenders and financial organizations. They'll need a lot of documents to figure out whether the development is viable and what the prices are in the area. When the property is still vacant, it may be difficult to obtain a larger loan since the moneylender may be skeptical about the rental income. However, when the property is pre-leased, the moneylender is assured of speedy returns, ensuring that the installments are paid on time. As a result, financial institutions will be willing to provide a larger loan with a lower interest rate and longer repayment terms.

Managing Cash Flows Effectively -

The landlord of rented commercial property has the advantage of being able to calculate the actual monthly income from the investment. It will assist the landlord in properly managing the finances. It will allow to build effective loan repayment plans and make an informed selection at the time of purchase. On the other hand, if the property remains vacant, the buyer will have to rely on predictions and estimates, which may or may not pan out. If the commercial property is purchased without considering this factor, the monthly budget planning can go haywire.

Low Risk -

Commercial renters get identified with the rented location and are known for operating out of the same office, shop, or warehouse. They have no plans to leave for a long time because they have built a name in the community and their clientele associate their physical presence with the address. Unless they plan to close or expand, the majority of them stay in the same location for decades. They also have a lock-in term in place, which means the new landlord can count on consistent income for a set length of time. At the time of renewal, you can renegotiate the rent and lease terms to keep the renters and ensure a steady revenue.

Considering all the above-listed advantages of owning a pre-released commercial property has the potential of generating quick and higher returns. However, the road that leads to these benefits could be difficult to spot as there are multiple factors that need to be considered before signing up for a deal. Though the final call is yours, PropReturns can help you in collecting the right insights for such properties.

As an online hassle-free platform, we provide data on commercial properties with an in-depth analysis. Be it Mumbai, Delhi, Gurgaon, or Bengaluru, you can check out the available commercial properties through our platform, PropReturns, to make a sound decision in commercial real estate.

Author avatar
Dhaval ShahInvestment Associate

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