How Preleased Property Works
In a preleased property transaction, the seller conveys the property with the existing lease agreement intact. The buyer steps into the landlord's shoes — receiving all rights and obligations under the lease from the date of possession.
The lease agreement specifies: monthly rent, rental escalation schedule (typically 10–15% every 33 months), lock-in period (during which the tenant cannot exit without penalty), security deposit amount (usually 3–6 months' rent), and maintenance obligations. The buyer reviews this lease before purchase — and the quality of the lease terms is often more important than the property location.
Security deposit transfer: at purchase, the existing security deposit (typically ₹2–5L for a small commercial unit) transfers to the buyer. This is deducted from the purchase price — reducing effective capital deployment.
Types of Tenants — What Makes a Good Preleased Tenant?
Not all tenants are equal in a preleased investment. PIKORUA advises clients to evaluate tenants in order of preference: (1) listed financial institutions or banks — long leases, regulated entities, very low default risk; (2) multinational corporates with Indian operations — strong covenant, typically 3–5 year leases; (3) established Indian corporates (NBFC, insurance, pharma) — good covenant, active leasing market; (4) mid-market businesses — higher yield but higher vacancy risk on lease expiry; (5) small retailers or sole proprietors — highest yield but meaningful credit risk.
In Ahmedabad's commercial market, PIKORUA specifically looks for preleased opportunities in Prahladnagar and SG Highway where the tenant universe includes financial services, pharma, and technology companies — providing the right balance of covenant quality and yield.
Calculating the Real Yield — Net of All Costs
Gross yield (Annual Rent ÷ Purchase Price) understates the true investment picture. Net yield adjusts for: maintenance charges (typically 8–15% of annual rent), property tax (0.5–1% of capital value annually in Ahmedabad), income tax on rental income (30% for HNIs after 30% standard deduction = 21% effective), and vacancy during lease renewal periods.
A property with 7% gross yield, after all costs, delivers approximately 4.5–5.5% net yield for an HNI investor in the 30% tax bracket — still superior to FD on a post-tax basis, and without considering capital appreciation.
