Every listing for pre-leased commercial property in Delhi leads with a yield figure. Divide the annual rent by the asking price, print the percentage, and the deal looks settled. Learning how to calculate ROI on a pre-leased property properly means understanding why that number is almost always the highest one the deal will ever produce.
Pre-leased and pre-rented describe the same arrangement: a commercial unit sold with a tenant already in occupation and a lease already running. You are buying an income stream rather than an empty asset, which is precisely why the income assumptions deserve harder scrutiny than the address does.
The gap between the quoted yield and the money that reaches your account is rarely dramatic on any single line. It is the accumulation that matters, and most buyers only find it after completion, when the first property tax demand arrives and the maintenance bill turns out not to be the tenant’s problem after all.
Gross yield is the marketing number
Gross yield is annual rent divided by purchase price. It is simple, it is comparable across listings, and it is not your return.
Take an illustrative case. A commercial unit is offered at ₹5 crore with a tenant in place paying ₹300,000 a month. Annual rent is ₹36,00,000, so the gross yield is 7.2 per cent.
That figure ignores everything it costs to own the asset and everything it cost to acquire it. Both belong in the calculation before you compare this deal against a fixed deposit, another property, or leaving the money where it is.
Treat gross yield as a filter for shortlisting, nothing more. It tells you which deals are worth doing the real arithmetic on.
What comes off the top
Five costs, and the lease decides which of them are genuinely yours.
Property tax. Payable by the owner unless the lease explicitly transfers it. Commercial rates differ from residential, and in Connaught Place and the wider New Delhi Municipal Council area the billing authority differs from the rest of Delhi.
Building maintenance. Read the lease carefully here. Tenants commonly pay common area maintenance, but structural repair, exterior work and major building systems usually stay with the owner. Assuming the tenant covers everything is the most frequent error in this calculation.
Insurance. Modest annually, but real.
Management and collection. Whether you pay an agent or spend your own time chasing rent, this has a cost. Put a number on it.
Vacancy provision. The tenant is in place today. At some point the lease ends, and the gap between one tenant leaving and the next signing produces zero rent while costs continue. Over a ten year hold, provisioning nothing for this is optimism, not analysis.
Continuing the illustration, assume property tax of ₹60,000, insurance of ₹25,000, non-reimbursed maintenance of ₹90,000 and management of ₹36,000. Total ₹2,11,000 a year.
Net operating income becomes ₹33,89,000, and the yield on the ₹5 crore price falls to 6.78 per cent.
Acquisition costs change the denominator
Here is the part most calculations skip. You did not deploy ₹5 crore. You deployed ₹5 crore plus everything it took to complete the purchase.
Stamp duty, registration charges, legal fees and due diligence all sit on top of the price. In Delhi, stamp duty rates differ by buyer category and are calculated on the higher of transaction value or circle rate, so confirm the current position with the sub-registrar rather than working from a figure quoted on a listing site.
Assume an illustrative 7 per cent all-in for acquisition. That is ₹35,00,000, bringing total capital deployed to ₹5,35,00,000.
Net income of ₹33,89,000 against capital of ₹5,35,00,000 gives 6.33 per cent.
The journey is worth seeing in one place.
| Measure | Figure | Yield |
|---|---|---|
| Gross yield, as quoted | ₹36,00,000 on ₹5,00,00,000 | 7.20 per cent |
| Net of operating costs | ₹33,89,000 on ₹5,00,00,000 | 6.78 per cent |
| Net on capital deployed | ₹33,89,000 on ₹5,35,00,000 | 6.33 per cent |
Figures are illustrative and used to show the method. Nearly a full percentage point separates the headline from the reality, and on this deal size that is roughly ₹43 lakh of expectation across a ten year hold.
Escalation is where the return is actually made
A single year’s yield tells you very little about a lease running nine years. What matters is the escalation clause.
A common structure is a 15 per cent revision every three years. Applied to the illustration, rent moves as follows.
| Period | Monthly rent | Annual rent | Gross yield on original price |
|---|---|---|---|
| Years 1 to 3 | ₹3,00,000 | ₹36,00,000 | 7.20 per cent |
| Years 4 to 6 | ₹3,45,000 | ₹41,40,000 | 8.28 per cent |
| Years 7 to 9 | ₹3,96,750 | ₹47,61,000 | 9.52 per cent |
By the final period the rent is 32 per cent above where it started, while your capital outlay has not changed. Two deals quoting identical gross yields today can diverge substantially over a full term purely on escalation terms.
So compare escalation clauses before comparing yields. A 7 per cent yield with a 15 per cent triennial escalation beats a 7.5 per cent yield with no escalation well before the lease runs out.
Check the lock-in period at the same time. Lock-in protects your income by preventing early exit, and a pre-leased asset with two years left and no lock-in is a very different proposition from one with seven years remaining and a five year lock-in.
What the yield cannot tell you
Tenant quality. A listed company on a nine year lease and a two year old business on the same rent are not equivalent risks. The stronger covenant is worth a lower yield.
The security deposit. The tenant paid a deposit to the current owner, and you will owe it back when the lease ends. Confirm in writing that the deposit transfers to you at completion. If it does not, you have quietly taken on a liability that never appeared in the price.
Title and approvals. Verify ownership, check that the commercial use is permitted and approved, and confirm no conversion or municipal dues are outstanding. Unpaid liabilities of that kind attach to the property rather than the seller.
Exit. Ask who buys this asset from you in seven years, and on what yield. An asset that only works for a buyer accepting a lower yield than you did is harder to sell than the purchase process suggested.
Do the arithmetic before you negotiate
A pre-leased purchase is bought on income, so the income assumptions deserve more scrutiny than the address. Work out the net figure on capital actually deployed, model the escalation across the full term, and read the lease before you read the brochure. The number that emerges is usually lower than the listing claimed and considerably more useful.
Where Vijay Kumar Associates fits
The firm also handles franchise development and brand expansion, which matters more on a pre-leased purchase than it first appears. Assessing a tenant means understanding why a brand took that unit, what its outlet economics look like, and whether the location still works for it in year six. That is a tenant-side question, and it is the one that decides whether your rent keeps arriving.
Every property is checked for legal clarity, ownership and documentation before it reaches a client.
If you are evaluating a pre-leased or pre-rented asset in Delhi NCR and want the lease and the numbers checked before you commit, call Vijay Kumar Associates on +91-9899456888.
Frequently Asked Questions
What is the difference between gross yield and net yield on a pre-leased property?
Gross yield is annual rent divided by the purchase price, which is the figure most listings quote. Net yield subtracts the costs of owning the asset, including property tax, insurance, non-reimbursed maintenance and management. A more accurate measure divides net income by total capital deployed, meaning the price plus stamp duty, registration and legal costs. Each step lowers the number, and the final figure is the one worth comparing against other investments.
Which costs does the tenant pay and which do I pay?
The lease decides this, and it varies deal by deal. Tenants commonly pay common area maintenance and utilities, while owners typically retain property tax, insurance, structural repair and major building systems. Never assume the position from a broker’s summary. Read the relevant clauses in the lease itself before you build any yield calculation, because a single misallocated cost can move the net figure noticeably.
How does rent escalation affect my return?
Escalation is often the largest single factor in a pre-leased investment’s total return. A structure of 15 per cent every three years means the rent in the seventh year is roughly 32 per cent above the first year, with no additional capital from you. Two properties offering the same yield today can perform very differently over a nine year term purely on escalation terms, so compare the clause before comparing the headline percentage.
What happens to the tenant’s security deposit when I buy?
The deposit was paid to the existing owner and is refundable to the tenant at the end of the lease. It should transfer to you at completion, and this needs to be recorded in the sale documentation. If it is not transferred, you inherit the obligation to repay it without ever having received the money, which is a liability that does not show up anywhere in the yield calculation.
Is a higher yield always the better pre-leased deal?
No, and an unusually high yield is often a signal to look harder rather than move faster. Yield prices risk, so a higher figure may reflect a weaker tenant, a short remaining lease, no lock-in, no escalation clause, or a location with limited re-letting demand. A slightly lower yield backed by a strong tenant, a long lease and a solid escalation structure will usually produce more money over the holding period.