If you are a landlord and have a real estate property such as a warehouse, commercial space, retail space or a showroom, you earn monthly rentals from that property. If you want a loan on very competitive interest rates, you can apply for Lease Rental Discounting (LRD). Read on to know how can this be possible.
Lease rental discounting helps you get loan against these rentals by availing loan facility at attractive interest rates. The monthly rents received from the tenants are kept as collateral for getting the loan. The bank examines long-term cash flow and provides the loan based on the exact amount and the loan is then payable by the rents promised i.e. the loan is given on the monthly rentals received from the tenant’s in future on discounted price. Banks deduct time value of money from monthly rentals to be received in future and pay the balance to the lessor if lease rental discounting is availed.
Lease rentals are not secured by the property but by the rental cash flow that the property is expected to generate. Hence, bank calculate the lease amount against the monthly rentals to be received in long go paid by the tenants, which means that rents paid by the tenant is treated as the interest returns to the bank. The borrower and the lender sign an agreement along with the tenant that he will pay the rents as debt amount to the bank and not the borrower and on occasion of non-payment or default the bank can auction the property for the recovery of the loan amount. This kind of loan is given generally for a long term of about 10 -15 years and a lock in period is decided in which the tenant cannot leave the property till the time lock in period is over. An Escrow account is maintained where the tenant deposits the monthly rentals and bank treat those rentals as EMI paid.
Mostly the interest rate is little higher in lease rental discounting than any home loan, it ranges from 9% to 12% p.a. with monthly rests. The variation in the interest rate may depend on the loan amount, type of property and the rental revenues. Lease rental discounting is a long-term financing which has got the quantum of loan (min./max.) which ranges from minimum of Rs. 10 lacs to maximum of Rs. 50 Cr.
Key features of Lease Rental Discounting:
· avail loans on the basis of future rental income
· value of the property
· discounted value of rentals
· approved loan tenure
· foreclosure or pre-payment of the loan can be done
· Simple documentation
If you wish to apply for such loans, get reliable help from Capital 9 team. We are always ready to lend you the support in getting the loans.