Wondering whether it’s worth it to purchase a property that already has tenants in it? Is it a cost-effective way to get tenants without spending time and money marketing your property? Here’s what you need to know about the benefits of pre-leased commercial properties for sale, along with some key tips for finding the right investment.
Benefits of Pre-leased Commercial Properties
There are many benefits to investing in a pre-leased commercial property:
- Immediate income can start you off on the right foot with your new investment. With an unleased property, it could potentially take months to get a steady flow of income. You would have to market the property and find tenants. Buying a pre-leased property will save you time and money upfront.
- Lenient financing is another perk of investing in pre-leased commercial property. Lenders are more lenient when investors can prove that they are buying a commercial space that has tenants. You could get bigger loan amounts, lower interest rates, or easier payback periods.
- Minimal financial risk is associated with investing in pre-leased commercial property. Tenants in commercial properties stay for long periods when compared to residential renters. Since commercial renters stay for years, it protects investors from the usual uncertainties of the market.
- Lock-in periods make the flow of income guaranteed. Many commercial leases have a 3-year lock-in on a 9-year lease cycle. However, this will depend on the specific agreements that are in place between the seller and their tenants. Make sure to read the fine print on each tenant’s lock-in period.
Tips for Purchasing a Pre-leased Commercial Space
Before looking at pre-leased commercial properties for sale, you should keep a few things in mind.
First, there’s a difference between pre-leased commercial spaces and pre-leasing before a building is built. Pre-leasing means that renters have committed to being in a building that hasn’t been constructed yet. Pre-leased commercial spaces are pre-existing spaces that already have tenants occupying them.
If you buy a pre-leased commercial property, make it a priority to get to know your tenants and build a positive relationship with them. Keep track of the tenants and their lease periods by setting up helpful alerts. This will keep you organized and ready for the tenants that have a lease renewal coming up.
Be aware of the local rental rates because you don’t want to overcharge and lose tenants. Even if you don’t plan to raise rent right away, it’s important to have a plan in place from the beginning. It is important to look at the rental agreements and see when and how much can rent be increased. In the situation that renters decide to not renew their lease, you should be prepared to find new tenants.
Investing in pre-leased commercial properties can have many benefits. However, it’s very important to keep track of the existing tenants and leases in one easily-accessible place. Best practice is to store everything in the cloud and set up automated reminders to ensure you never miss a renewal date, lease escalation, or other important date. STRATAFOLIO’s lease management tool can help you invest and manage all of your commercial properties with ease!
Schedule a 1:1 demo to see how STRATAFOLIO can make your job as a commercial real estate owner easier.