RICH Property Solutions, Ahmedabad
Is it good to buy pre-leased property?
It can be a good buy for an investor who wants rent from the first month and who checks the tenant, the lease and the full cost before paying. It is a poor buy when the lease is short, the tenant is weak, or the price assumes rent that may not last.
Short answer
It can be a good buy for an investor who wants rent from the first month and who checks the tenant, the lease and the full cost before paying. It is a poor buy when the lease is short, the tenant is weak, or the price assumes rent that may not last.
No pre-leased property guarantees a return. The return depends on the lease and the tenant.
It can work well when
- The tenant is established and has been in the space for years
- A lock-in period and a long remaining term
- The rent rises on a clear schedule
- The price is based on the rent you will actually receive
- You have checked the documents with your own lawyer
Be careful when
- The lease ends soon and renewal is uncertain
- The tenant pays late or is in a weak business
- The yield looks high only because the price is low for a reason
- The seller will not show the lease or the rent receipts
- You have not worked out costs beyond the price
Five questions to answer before you buy
- Who is the tenant, and for how long have they been paying rent?
- How many months of lock-in and how many years of term remain?
- How much does the rent rise, and how often?
- What does the owner pay: property tax, maintenance, repairs?
- What is your plan if the tenant leaves?
What happens when the lease ends?
- The tenant may renew, on the same or new terms
- The tenant may leave, and the space may stay empty while you find another
- A new lease may be at a different rent
- A vacant property is valued on its own merits, not on the old rent
This is the question that decides the long-term result, so ask for the lease before you look at the price.
Check the numbers and the basics
Work out the return with the full cost, as shown in how to calculate rental yield. If the term is new to you, start with the meaning of pre-leased property. Our pre-leased page for Ahmedabad lists what we check on every deal.
This page is general information. It is not legal, tax or investment advice. Check the documents of any property with your own lawyer and chartered accountant.
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