Pre-Leased CRE: Cracking the Lease and Due Diligence Code (Part 2)

Welcome back, real estate enthusiasts! In Part 1, we explored the magic of quality and location in pre-leased Commercial Real Estate (CRE).
Link to our Part 1 : Fractional Ownership Investing Guide Part-1

Now, let's dig deeper and unveil the secrets of lease terms and due diligence – your armor before entering the investment battlefield!

Lease Terms: Negotiating Your Fortunes

The lease agreement is your roadmap to success. Here's what to prioritise:

1. Lease Length: Aim for long-term leases (5+ years) with renewal options for predictable and stable income.
2. Escalation Clauses: Secure rent increases tied to inflation or property expenses to maintain income growth.
3. Tenant Responsibility: Understand who shoulders repair, maintenance, and insurance costs to avoid unexpected expenses.
4. Exit Strategies: Negotiate subleasing or termination clauses for unforeseen circumstances.

Due Diligence: Unmasking Hidden Treasures

Before you sign the dotted line, do your homework!

1. Financial Analysis: Scrutinise the tenant's financials, creditworthiness, and lease guarantors. Can they afford the rent, and who backs them up?
2. Market Analysis: Investigate the micro-market trends, vacancy rates, and comparable rents. Is the investment aligned with market dynamics?
3. Physical Inspection: Assess the property's condition, compliance with regulations, and potential renovation needs. Are there hidden costs lurking?
4. Legal Review: Consult a real estate attorney to ensure the lease agreement is watertight and protects your interests.

Remember: Due diligence is not a sprint, it's a marathon. Take your time, ask questions, and gather all the necessary information to make an informed decision.

Stay tuned for Part 3! We'll explore financing options, exit strategies, and building your pre-leased CRE portfolio.

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