Pre-leased assets in commercial real estate are getting popular by the day. The idea of getting an instant income from rent is very encouraging and it gives the investor a lot of leverage in multiplying the wealth and build on from one office to another office and continue the same year after year.
Most of the property investors, enter into lease of the current commercial property they have and then they continue to acquire more properties and lease them again and the regular income from the properties in terms of rent helps them secure bank loans and pay EMI’s and in turn create an Asset.
There was a formula 10 years back that 100 months rent used to be the value of the property, which has now become around 125 – 140 months due to diminishing yields due to higher taxes, common area maintenances etc.
The Commercial Return on Investment in Mumbai for properties leased out to Corporates varies between 6.5 to 8.5% max. There is a tax advantage and depreciation etc. on the asset you buy and hence the tax efficiency works well in favour of property owners.
The lease rent discounting plays an important role in getting the lease rent upfront for a few years from any bank and this creates a good corpus for the owners to spend on the new asset.