Real Estate
The tenant is in place. What will the property actually earn?
18 October 2026 · FinAnalytic Editorial · 3 min read
A buyer visits a commercial unit. The tenant is already operating, rent is coming in and the broker has a neat yield calculation. For a moment, the purchase looks almost finished. Then the buyer asks who pays for the next major repair.
Start with the rent that reaches the owner
In this illustrative purchase, the headline number is annual contracted rent divided by the asking price. That is useful as a first comparison. It leaves out several questions the owner will eventually have to answer.
How much rent has actually been collected? Are there arrears or concessions? Does the owner pay any maintenance, insurance, local taxes or repair costs under the agreement? Is a quoted rent inclusive of charges that will be passed on?
Ask for the signed lease and evidence of receipts. A promised future rent increase should sit separately from income already being received.
Rebuild the calculation with explicit assumptions
Take a hypothetical property priced at ₹1 crore, with rent of ₹60,000 a month. Annual gross rent would be ₹7.2 lakh, or 7.2% of the asking price.
Now assume acquisition costs of ₹8 lakh, one month without rent during the year and ₹90,000 of owner-paid annual operating expenses. Rent received falls to ₹6.6 lakh. After those expenses, operating income is ₹5.7 lakh. Against ₹1.08 crore paid to acquire the property, that is about 5.28%.
These are teaching assumptions, not local market estimates or prescribed charges. The calculation excludes borrowing, income tax, major capital expenditure and sale proceeds. It shows why two apparently identical yield claims may measure different things.
Read the exit clause before relying on the tenant
The lease end date is only part of the story. Review break rights, notice periods, lock-in provisions, deposits, rent-free periods and responsibility for reinstating the premises. Have the agreement interpreted for the specific transaction.
Ask what happens if this tenant leaves. A specialised fit-out may be valuable to the current business and unsuitable for the next one. Look at alternative users, competing vacant units and the cost of preparing the space for reletting.
A deposit is not recurring rental income. It may have to be returned, subject to the contract and any valid deductions.
Keep the property checks alongside the spreadsheet
Where RERA applies, the project record provides a starting point for reviewing disclosures. Section 4 of the central Act includes requirements concerning title, encumbrances, approvals and sanctioned plans for registration applications. Applicability and transaction-specific requirements need to be checked.
Have the title, permitted use, approvals and relevant completion or occupancy documents reviewed locally. An occupied unit and a registration number do not, by themselves, answer every legal or technical question.
Run a year in which things go less smoothly
Recalculate with a longer vacancy, a repair bill and slower reletting. If borrowing is involved, show debt payments separately and ask how a shortfall would be funded. An investment that needs the tenant to renew immediately has a different risk from one with enough reserves to wait.
The buyer may still decide the unit is attractive. The difference is that the decision now rests on a lease, a cost schedule and a realistic fallback plan, rather than one tidy percentage.
Sources & further reading
Research checked 18 October 2026. Scenarios and calculations are illustrative unless identified as reported facts.