The real estate sector is one of the largest industries that is globally recognized. The way we look at it is that a lot of parts or segments in Real Estate have been doing well. Over the last few years, there’s an upward trend in the Indian Real Estate Sector. Pre-Rented Property (PRP) is increasingly becoming one of the attractive investment opportunities as it generates income from day one. A lot of Investors have been very actively investing in this asset. Especially in an era post the demonetization drive, where the returns on fixed income products like bonds, bank deposits are witnessing a decline, PRP is becoming an attractive investment opportunity as it provides stabilized returns with an appreciation on exit
Let’s first understand what Pre-Rented Property (PRP) is
Pre-Rented Property means Property sold with Tenant i.e., Property leased to a grade Tenant at an agreed rent (typically in the range of 3-15 years) with a fixed security Deposit of 3 to 6 months and after that sold in the market. The lease is then transferred to the respective owner with the transfer of property, and the new owner enjoys lease rent subsequently.
Now, these returns range between 6%-8% p.a. to begin with and gradually improves on account of rent escalations, which is typically 5% on a year or 15% after three years, depending on the lease terms.
Importance of Pre-Rented Properties:
There are multiple benefits for purchasing a pre-leased property, to begin with, PRP is already given on lease and fetches a regular rental income, as the investor gets the lease transferred, he/she also receives the tenants and rental income by default. There is no waiting period for the buyer to earn Return on Investment (ROI), and later this income can be used for various business purposes.
Usually, the value of pre-rented properties appreciates over some time. And, if it is located in a premium location or with good infrastructure, design, and amenities, then the capital appreciation can go even higher.
The buyer can enjoy a good capital appreciation on pre-rented properties, provided they keep a gap of at least 10-15 years. Hence the investors can make around 16-18% p.a. returns from such an investment opportunity.
Most real estate properties are low on liquidity, as it can take months to years to sell them. However, PRP comes with the benefit of regular rental income, which makes them a more liquid investment in nature. Due to this advantage, individuals and corporate investors prefer to buy commercial pre-leased properties over unrented assets.
The other lucrative benefit for PRP is that investors can avail of a term loan against rental discounting for grade A Tenants.
Few factors that should be taken as a consideration while Buying Pre-Rented Properties are:
Duration of lease: Longer the period better it is for the property in terms of stability.
Return on Investment: Higher ROI is better, but one should see that it should be close to the ROI of similar properties in that area
Lock-in period: Higher the lock-in period better it is, locking of 3 to 5 years is standard. Substantial penalty on the Tenant on vacating the property within the lock-in period gives higher safety.
Loan on Property: The seller should clear all mortgages of bank and personal loans; undertaking from the buyer regarding the same is a must.
Furnishing of Property by owner or Tenant: Buyer should check about the furnishing/interiors of the property. If the owner has done the furnishing of the property then it is better, if Tenant has done the furnishing of the property, then it is essential to know about the disposal of interiors and furniture in that case.
Dues on the Property: All the dues on the property should be clear i.e.
Maintenance, Electricity, MCD taxes, House tax.
Source: https://www.spacecreattors.com/pre-rented-projects.php
Let’s first understand what Pre-Rented Property (PRP) is
Pre-Rented Property means Property sold with Tenant i.e., Property leased to a grade Tenant at an agreed rent (typically in the range of 3-15 years) with a fixed security Deposit of 3 to 6 months and after that sold in the market. The lease is then transferred to the respective owner with the transfer of property, and the new owner enjoys lease rent subsequently.
Now, these returns range between 6%-8% p.a. to begin with and gradually improves on account of rent escalations, which is typically 5% on a year or 15% after three years, depending on the lease terms.
Importance of Pre-Rented Properties:
There are multiple benefits for purchasing a pre-leased property, to begin with, PRP is already given on lease and fetches a regular rental income, as the investor gets the lease transferred, he/she also receives the tenants and rental income by default. There is no waiting period for the buyer to earn Return on Investment (ROI), and later this income can be used for various business purposes.
Usually, the value of pre-rented properties appreciates over some time. And, if it is located in a premium location or with good infrastructure, design, and amenities, then the capital appreciation can go even higher.
The buyer can enjoy a good capital appreciation on pre-rented properties, provided they keep a gap of at least 10-15 years. Hence the investors can make around 16-18% p.a. returns from such an investment opportunity.
Most real estate properties are low on liquidity, as it can take months to years to sell them. However, PRP comes with the benefit of regular rental income, which makes them a more liquid investment in nature. Due to this advantage, individuals and corporate investors prefer to buy commercial pre-leased properties over unrented assets.
The other lucrative benefit for PRP is that investors can avail of a term loan against rental discounting for grade A Tenants.
Few factors that should be taken as a consideration while Buying Pre-Rented Properties are:
Duration of lease: Longer the period better it is for the property in terms of stability.
Return on Investment: Higher ROI is better, but one should see that it should be close to the ROI of similar properties in that area
Lock-in period: Higher the lock-in period better it is, locking of 3 to 5 years is standard. Substantial penalty on the Tenant on vacating the property within the lock-in period gives higher safety.
Loan on Property: The seller should clear all mortgages of bank and personal loans; undertaking from the buyer regarding the same is a must.
Furnishing of Property by owner or Tenant: Buyer should check about the furnishing/interiors of the property. If the owner has done the furnishing of the property then it is better, if Tenant has done the furnishing of the property, then it is essential to know about the disposal of interiors and furniture in that case.
Dues on the Property: All the dues on the property should be clear i.e.
Maintenance, Electricity, MCD taxes, House tax.
Source: https://www.spacecreattors.com/pre-rented-projects.php
