In the present day scenario, everyone is looking for high return investment options. As soon we have a disposal amount in the savings bank account, we think of investing it in a different sector to gain returns or make profit. The Indian market also offers a plethora of such investment options such as: Bank fixed deposits, insurance policies, National Savings Certificate, Public Provident Fund, Stock Market Mutual Fund, and Real Estate.
These can be further categorized into two different sections: safe and risked. Here is a list of the two.
Safe investment options:
- Fixed Deposits offered by financial institutions accrue 8.4% of the annual returns for a non-senior citizen. But it varies from bank to bank and their terms and policies. Senior citizens receive return of 9.2% annually in average.
- NSC is a government of India introduced investment option. In it the deposited money gets locked in for the minimum tenure of 5 years and fetches an 8.5- 8.8% calculated interest which can be forfeited half yearly.
- PPF is another safe investment options that can yield the minimum annual return of 8.7% interest.
- Real estate investment option has huge prospects in the sectors of residential, commercial, retail, manufacturing, healthcare zones etc. Along with a regular income (received in the form of rent), you create a capital asset as well as receive capital appreciation. Further, unlike other investment options, your money does not get blocked. You can sell the property you own at any point of time.
- Stock Market is a very risky investment zone. Before investing in anything, you should be aware of the risks involved- you can lose the entire sum invested or gain almost double the amount.
- Mutual funds accumulate wealth from investors and invest in share markets. It shares the same risk of the stock market.
Looking at all these you may wonder what to invest in, which is the best option to choose. Investment in real estate is perhaps, one of the safest high yield option. You get a regular income, capital asset, and again, appreciation of your invested amount. Further, there is another segment in real estate which few people know about. The real estate market of India has ventured into a new section of investment in pre leased commercial properties which fetch you higher returns (between 5-10%) as well as has the attribute of being a safe investment option.
Definition of Pre-Leased Commercial Properties:
A pre-leased property is one which has already been rented out to a company/firm and is on sale. Once you buy the property, you start receiving rental returns from the company leasing the property. Without the hassle of searching for tenants you receive rents from the first day itself.
These properties are sold at their rental yield. Rental yield is the regular (monthly) rent amount one gets from a tenant. This gain on investment happens from the very month you purchase the property.
The percentage of the rent generally varies from 5% to 12% of the actual property value gained annually. However, depending on parameters such as location and tenant, the rental value can go up to as much as 15%. Moreover, reputed tenants such as banks like PNB, SBI; corporate firms like Airtel, IBM; retail shops like Pantaloons, Big Bazaar etc. fetch much better Return on investment (ROI).
The starting amount for investment in a pre leased commercial property begins at somewhat Rs. 40 Lakhs and can go up to as much as Rs. 100 Crores or more.
Benefits of investing in such a property:
- Zero wait: In pre leased property one can receive returns from the first day. Unlike, other kinds of investment where you need to buy a property and then start searching for a tenant to negotiate the price and put your property on rent, it fetches you ROI from Day 1.
- Fixed rent received: An assured and safe monthly return is derived from this kind of transaction. Since the commercial property has already been put on rent at the time of purchase you receive a signed lease agreement which mentions the lock in period of the tenant’s occupancy and previously collected security deposit. You receive the mentioned rent for the lock in period as well as the security deposit made.
- Saving tax: The rent received from the tenant is taxable. But 30% of the value is deducted for maintenance and repair work, irrespective of the amount spent on actually doing the work. As a result you need to pay tax on only 70% of the rent amount. This helps you to save tax.
- Escalation of rent amount: Rent appreciation occurs every time after the completion of the lock in period. The lock in period is the tenure within which the tenant cannot vacate the property. It is usually 3 years for a lease agreement of 9 years. If the tenant does decide to vacate the property before its completion, it loses on the security deposit amount. After the completion of the lock in period, the rent is usually appreciated by 15%. It means that the return increases, which is an advantage over other forms of investment.
- Hike in property value: Over the time all kinds of property evidence increase in value but pre leased property encounter higher appreciations. Not only an increase in rental returns, the value of the property itself increases with a steady pace. This is a benefit over all other kinds of investment. The value of the asset increases. In FDs and other investments, you gain interest but the principal amount remains the same. Properties witness capital appreciations too.
- Low risk factor: One of the most important factors is the low risk involved in this kind of investment. First, the property is already occupied by the tenant in the first place which implies that assured return for the mentioned tenure is fixed. And since the transaction has been completed earlier you do not need to sweat about legal documentation etc. Second, during economic slowdown pre leased property is barely affected. The owner continues to receive the rentals at the end of each month. It is because of the pre defined occupancy period of the tenant the condition of the market does not affect it.
- Issuance of bank loan: Banks/ financial institutions issue loans easier and cover as much as 90% of the of the total property value. They also include their ‘Future Rental Discount’ tool which further helps in conducting a seamless transaction procedure.
Thus, investment in pre leased commercial property is by far the safest and most beneficial kind of investment option the market is providing. Not only you have access to a fixed rental for a fixed tenure, but also the rental yield percent increases along with the value of the property with time.