Real estate has always been the investment preferred by those searching for stability, long-term increases in value, and passive income. However, every real estate investment has its degree of safety and assurance in returns. This is precisely why pre-leased commercial properties shine out as one of the most attractive and least risky alternatives.
A pre-leased commercial property is a real estate asset in which a tenant has been allowed to occupy the space under a lease contract. Thus, the investor does not need to worry about finding a tenant, negotiating leases, or attaining immediate rental income since revenues are already flowing in.
Pre-leased property is among the most secure options for investors who need financial security, regular income, and low risk from vacancies. However, do such wonderful investments come without any hidden risks? This blog delves into both advantages and probable concerns regarding pre-leased properties as well as different factors that influence many investment decisions in pre-leased commercial real estate.
Are you wondering whether it’s worth purchasing a property that already has tenants in it? Is it cost-effective 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
Real estate is considered a steady support asset for an investor’s portfolio. Stocks, bonds, and other paper assets are subject to market conditions, while real estate investments tend to produce positive cash flows predictably over time, along with capital appreciation. More so in commercial real estate, the right property can preside over many layers of security. Here 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. When owners buy commercial property, they usually have to look for tenants, discuss lease terms, and wait a few months before they get paid. When you pre-lease, you don’t have to wait at all, so your cash comes right away.
- 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. While periods of recession make it difficult for an investor to fill space, even under the best of conditions, selecting pre-leased commercial property significantly reduces risk because tenants occupy these spaces under lease.
- Minimal financial risk is associated with investing in pre-leased commercial property. Tenants in commercial properties stay for longer 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 commit 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. Request an estoppel to ensure there are no outstanding agreements you need to be aware of. Also, ask for the previous common area maintenance reconciliation (CAM) reports from the current owner.
Be aware of the local market rates because you don’t want to overcharge and lose tenants. Even if you don’t plan to raise the rent right away, it’s important to have a plan in place from the outset. It is essential to review the lease agreements to understand when and by how much the landlord can increase the rent. If tenants decide not to renew their lease, you should prepare to find new tenants.
Once you have the property, you will want to 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.
Manage Your Leases with STRATAFOLIO
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 dates. STRATAFOLIO’s lease management tool can help you invest in 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.
