Pre – Leased Properties
Pre-leased properties are properties or pieces of real estate, which are pre-leased to different Banks, Companies or Multinationals. The idea being, that the asset is a performing asset with monthly rental yields, with a defined lock in period.
Usually, the yield in the commercial segment is varying from 6 to 12% at max and for residential it is seen at 3 to 5% approximately.
Why Pre-Leased Properties are lucrative?
a) Property buyers get a pre-leased property, so rental income starts day 1 of purchase so efficiency in investment.
b) Capital Appreciation of an Asset
c) Long Term holding of an Asset – could be upto 9 or 12 or 15 years or even more
d) Possibility for Self use
e) Leveraging the Rentals with Lease Rent Discounting (LRD), which further gives the property owner liquidity.
f) Creation of a second asset and making a cycle of investments.
g) Taxation benefits in select cases
What are the risks involved in Pre-Leased Properties?
a) Lease terms to be evaluated, in the event of a termination, finding a new tenant can take more time, means rental loss and the returns diminish then.
b) Most of the properties are high priced to acquire, as when a seller, sells a pre-leased property, usually the capital values are inflated because they are giving definite returns and especially in Mumbai, if the property is given to a Bank, then the property Sellers, surely demand premium because, you can leverage the lease rent income.
c) Ticket size runs high so out of reach for small investors.
d) Most lucrative options are available in the range upwards of 10 Cr.
e) Some times companies vacate due to economic reasons or they can’t afford the rent any more or they wind up operations in the country or city, the only respite then is the Security deposit, which a lot of times gets appropriated in the defaults or damages and legal costs.