Everything you need to know about Commercial Rental Property in India
Commercial rental property is a business investment that can provide the owner with an income. It's an excellent way to diversify your portfolio and offers more stability in case of economic troubles since these properties benefit from economies of scale as well!
Usually, if an owner buys vacant premises, he should make sure that he can lease out the property because the longer the place is vacant, the longer the time it takes to earn the rental income. It implies that the cost of the premises increases for each day that the property does not have a tenant; it is an opportunity cost that is being lost.
If there's no tenant in the building, then investors won't be able to earn any returns on their investments because commercial real estate only has two parts: appreciation of the property itself and rental payments from tenants or owners who rent out space within these facilities.
Characteristics of a Commercial Rental Property
If you buy a vacant property, you have to be confident of The micro-market. If the micro-market has high vacancies, it can take relatively longer to tenant your space out, and it is more competitive because tenants have more options to choose from.With a pre-leased property, you have an established tenant and can see their income. This increases the stability of your cash flow compared to when renting out properties yourself because tenants often sign ten year leases instead of one-year rental agreements like they do in residential real estate markets.You have stability and visibility into your cash flows.
Properties appreciate over time, but essentially, because you have a tenant in place, the income is not an issue when waiting for appreciation. More importantly, many Commercial Real Estates are financed by bank loans, Lease Rental Discounts(LRD), and Loans Against Property(LAP). These are ways that people employ to invest in commercial real estate, and leverage is a pretty common concept because it helps amplify the returns for the investors.
When your property is not leased out, it becomes much harder to secure a good loan and a loan rate from a bank. Banks also do a credit analysis of a tenant and try to understand the tenant's bandwidth and the tenant's stability in paying the rental. So, having a tenant in place or being a pre-leased property creates a lot of flexibility in financing the acquisition. Commercial Rental properties also mitigate a lot of operational hazards.
The best practices to follow while leasing out your premises
Quality of the tenant
Quality tenants are vital to the stability of income for any landlord. They often come in and invest into the office space. When you have a tenant like Facebook, they are going to invest a lot of capital into the premises to upgrade the interiors, which increases the tenant's stickiness because when a tenant is spending a lot of money upfront, he is less likely to leave. They are also very stable in terms of their business profitability, because of which the rental amount does not become a burden for them. When companies like FaceBook come in, Landlords can be confident because the tenant is there where the entire value or proposition of the building will also go up with time.
If you pay an X amount for a property, you should make sure that the commercial rental yield in India is 7-9% percent because if you lease it out at a lower rental, then as an investment, it does not make sense. Your returns will not be commensurate with the market standard. So to that extent, even the rental amount is important. Still, there is often a trade-off in getting an A-plus grade tenant and the rental amount because when Amazon or Facebook comes, they will not be paying market rents. They will ask for a 10-20% discount on the market rentals, and landlords agree to the trade-off. With a slightly longer-term perspective in mind, there will be stability and makeup that rental because of the appreciation.
How is myre helping retail investors to find the best commercial property?
- With Myre, commercial rental property management is hassle-free. All it takes is a few clicks, and your space will be ready for business.
- Myre takes off all the operational difficulty from investors with respect to tenanting a space, managing the property, negotiating with tenants, and bringing them on board. Because getting a tenant on board is a long-term process owing to the protracted due diligence involved in such transactions, there are negotiations, giving discounts in exchange for higher deposits.
- Myre scales its expertise and provides it to all the fractional owners; thereby, a fractional owner would get all the benefits of the commercial real estate, but they don’t have to deal with the headache of the operational aspect of managing the investment.