Commercial & Alternative Real Estate

Your flat is let out and, after the municipal tax, the repairs and the months it sat empty, it nets you barely 2–3%. Then a broker slides a page across the table: an office “yielding 8%,” a warehouse “at 10%.” The number lodges in your head and won't leave — a shop or an office pays double what my own home does. Am I leaving money on the table by staying residential?

That pull is real, and so is the fear underneath it: commercial feels like a different, more sophisticated world — leases you don't understand, a GST you've never dealt with, loans on harsher terms, and the quiet dread of a big unit sitting empty. The honest answer to “is commercial the smarter move?” is neither a cheerful yes nor a fearful no. Commercial trades a higher headline yield for higher, lumpier risk and more moving parts — and whether it's smarter for *you* depends on which of those parts you can actually manage. This lesson hands you the real version, so you can decide with your eyes open rather than on the strength of a broker's page.

Two people carry this lesson. Suresh — 55, Kochi, earning ₹40,00,000 (₹40 lakh) a year in the top tax slab — already owns a let-out flat and now weighs a small office against that flat and against a REIT. Karthik — 30, Hyderabad, in IT on ₹16,00,000 (₹16 lakh) a year — is building his own home and wonders whether a co-working unit or a paying-guest set-up alongside it is a clever second income or a full-time job in disguise.

Where this sits. Lesson 3 · *Real Estate as an Asset Class* taught you to read a residential property as an investment — rental yield, capital appreciation, leverage and the negative-carry trap. This lesson extends that same thinking to commercial. The liquid, low-ticket way to own commercial property without a sale deed at all — a REIT — was Lesson 44 · *REITs, InvITs & Fractional Ownership*, and we'll keep pointing back to it as the alternative on the table. The lease itself and the TDS on rent belong to Lesson 31 · *Renting It Out — the Landlord*; the tax when you eventually sell is Lesson 35 · *Selling Your Property — Capital Gains*; and buying a plot to build a commercial unit is Lesson 21 · *Buying a Plot or Land* and Lesson 22 · *Building Your Own Home*.

“Commercial” isn't one thing. Under the single word sit four quite different businesses, and the yield you can earn — and the risk you take — depends entirely on which one you're buying. Meet the commercial formats.

Office. You buy a unit or a floor and lease it to a business, typically on a 3–9 year lease with a lock-in and built-in escalations (the rent steps up, often ~5% a year or ~15% every three years). Buildings are graded — Grade A (premium, big-brand and MNC tenants) down through Grade B and C. An office pays more than a flat because a company on a multi-year lease is a more bankable tenant than a family on an eleven-month agreement. The flip side: if that one business leaves, a large unit can sit dark for months while you still pay its bills.

Retail / shop. A high-street shop or a unit in a mall, leased to a retailer — sometimes on a base rent plus a share of the shop's revenue. Here location is the whole game: a shop where the footfall is dependably yields well, a shop fifty metres off the main line bleeds. Retail yields can be the highest of the lot, and the vacancy risk the most location-specific.

Co-working. Either you lease space to an operator who runs the desks, or you run it yourself, renting seats and cabins by the month. Note what that second version really is: an operating business, with fit-out costs, high member churn, staff and daily management. The eye-catching “yield” on running a co-working floor is closer to the profit of a small hospitality business than to passive rent — a distinction we'll return to.

Warehousing / logistics. Large sheds near highways, industrial corridors and city edges, leased to e-commerce, third-party logistics and manufacturers — usually on the longest leases of all, 5–15 years. It's the fastest-growing commercial segment in India, riding online retail and manufacturing. Vacancy is lower when the shed is well-sited, but the tickets are big and often single-tenant, so tenant-concentration risk is real.

The matrix below sets the formats side by side — and adds a residential flat at the bottom as your familiar baseline. Read every row across, not just the yield column: the higher numbers travel with longer leases and business tenants, but also with lumpier vacancy and a GST-and-loan catch your flat never had to think about.

See the pattern the matrix draws out: yield rises roughly with how much of a business the format is. A bare office let is nearly passive and yields ~6–9%; a co-working floor or a paying-guest operation can headline higher still, but only because you're running an enterprise, not collecting rent. Every commercial row also carries an “18% on rent” tag and a thinner loan — the two structural differences we take apart next.

The number a broker quotes is almost always the gross yield — the full annual rent divided by the price, before a single rupee is subtracted. The number that reaches your bank account is the net yield — after the unit sits empty for a while, after you pay its property tax and upkeep, and after any GST you can't pass on. On a commercial property the gap between the two is wide, and pretending it isn't is how a “12%” becomes a disappointment.

A related word you'll hear is the cap rate (capitalisation rate): the property's net operating income divided by its price — a yield on the asset's own economics, *ignoring your loan*. It's how professionals compare buildings on a like-for-like basis before financing muddies the picture. For our purposes, treat the cap rate as the net yield of the property itself; your loan then either lifts your return on equity or, if the debt is dearer than the cap rate, drags it down (that's the next section).

Now the honest part — the risks that turn a fat gross into a modest net:

• Vacancy — higher, and lumpier. A flat re-lets in a few weeks; an office or shop can sit empty for six to twelve months between business tenants — and while it's empty you keep paying maintenance and property tax. National office vacancy has run around 15–17% for years; budget for it, don't wish it away.
• Tenant-concentration. A single-tenant unit is binary — fully rented or fully empty. One default or one non-renewal and your income goes to zero overnight. Multiple smaller tenants spread the risk but multiply the management.
• Illiquidity. Commercial takes longer to sell than a home — often six to twelve months or more — the buyer pool is smaller, and round-trip transaction costs run ~7–10%. Your money is not something you can pull out in a hurry.
• Cyclicality and obsolescence. Offices fall out of fashion (older buildings, hybrid work); retail shifts online; a Grade-A tower becomes a Grade-B one as newer stock opens next door. The building you buy has to stay wanted.

You met GST on property back in the buying lessons (Lesson 5 and Lesson 19). For a home it's a brief encounter: an under-construction flat is taxed at 1% (affordable) or 5% (other), both without input credit; a ready or resale home with its occupancy certificate is nil; and renting a home out for someone to live in is exempt. After you buy, most home-owners never think about GST again. Commercial is different at two distinct moments, and there's a trap sitting between them.

Moment one — buying under-construction commercial: 12%, but *with* Input Tax Credit (ITC). ITC means the GST a business paid on its own inputs can be set off against the GST it owes. So although the headline 12% is higher than a home's 1–5%, the “with ITC” makes it far less painful for a buyer who can use that credit — the tax isn't a dead cost the way it is on a residential flat. (A ready, OC-issued commercial unit, like a ready home, is nil.)

Moment two — letting it out: 18% GST on the rent. Commercial rent is taxed at 18%, full stop — the exemption that spares residential-for-residence rent never applies to commercial. In the ordinary case the landlord adds 18% on top of the rent and pays it to the government.

The trap in between — the Reverse Charge Mechanism (RCM). Normally the supplier — here, the landlord — collects the GST and remits it. Under reverse charge, the *recipient* pays it directly instead. Since 10 October 2024, if an unregistered landlord lets a commercial unit to a GST-registered tenant, the tenant must self-invoice and pay the 18% under RCM (in cash), then claim it back as credit. The point for you as a would-be landlord: tenants dislike that extra cash-and-compliance step, so an unregistered landlord's unit gets discounted or skipped. Staying “below GST” to keep things simple can quietly cost you rent — or tenants.

Here's the nuance that decides whether GST dents your yield at all. When it's a clean pass-through — you're registered, you charge 18%, and your tenant is a registered business that reclaims it as ITC — GST is net-neutral to both of you and doesn't touch your return. It becomes a real cost only when it can't be passed through: the tenant is small or exempt and can't claim ITC, or the RCM surprise lands, and you end up absorbing up to 18% to keep the tenant. That single fork is the difference between a 6% net and a 4.6% net on the very same office — which is exactly what the card below lays out.

So GST on commercial isn't automatically a yield-killer — but it's a layer you must actively handle. Register when it makes you more lettable; check whether your prospective tenant can claim ITC before you price the rent; and never accept a yield quote that hasn't said what it assumed about the 18%.

A home loan is a gentle instrument — up to 75–90% of the price (Lesson 15), a rate of roughly 8.25–9.5% in 2026, no prepayment penalty on floating loans, and generous tax breaks. A commercial-property loan is a tougher animal on every count, and mistaking one for the other wrecks your maths.

• Lower loan-to-value (LTV). The RBI caps commercial LTV around 75%, but in practice many lenders advance only ~55–65% of the value. You bring the rest — often nearly double the own-capital a home would need for the same ticket.
• Higher rate, higher fees. Commercial rates typically run ~9–12% or more — roughly 1–3 percentage points above a home loan — with heftier processing fees and shorter tenures.
• Underwritten differently. The lender doesn't just size you up; it sizes up the tenant and the lease. A unit let to a blue-chip company on a long lock-in borrows on better terms than an empty one. Lease-rental discounting (LRD) is the purest form of this — a loan advanced against the *future rent* of an already-leased property, where the bank is effectively lending against the tenant's covenant and the lease's remaining years.

Now put the dearer loan next to the modest net yield and you meet a familiar ghost from Lesson 3: negative carry. If you borrow at ~10.5% to hold an asset that nets ~6%, the loan costs more than the rent brings in — you feed the gap out of pocket every month and your entire case rests on the property appreciating. Commercial's higher yield *narrows* that gap compared with residential (where 8.5% debt against a 2% flat is deeply negative), but expensive commercial debt can still tip even a decent asset into negative carry. We'll see it bite Suresh in hard numbers two sections on.

Here's a belief that costs people money: “commercial rent is business income, so I lose the 30% deduction and the interest write-off.” It's mostly a myth, and it's worth correcting carefully, because it changes how you value a commercial let.

The rule. Rent from *any* building you own — home, shop, office or godown — is taxed under Income from House Property. A let-out commercial unit gets the same 30% standard deduction (Section 24a) and the same uncapped Section 24(b) interest deduction as a let-out flat. The ₹2,00,000 (₹2 lakh) interest cap you may half-remember is a *self-occupied residential* limit — it never applied to a let-out property of any kind. So on the income-tax side, a passively-let office is not a different planet from Suresh's let-out flat; it's the same computation with a bigger tenant.

When it *does* become business income. The head shifts to Profits & Gains of Business or Profession (PGBP) when letting is genuinely your *business* — you hold property as stock-in-trade, or (the common case) you let it bundled with substantial services: a co-living or PG operation with meals and housekeeping, a co-working floor with staff and amenities, a serviced apartment. Then you drop the flat 30% and instead deduct your *actual* expenses plus depreciation — better if your real costs exceed 30%, worse if they don't, and always with more compliance. The courts have drawn this line for decades (the *Chennai Properties* / *Shambhu Investment* line of cases): where letting is the main business, it's business income; where you're simply earning rent from an asset, it's house property.

And capital gains? Selling a commercial property follows the ordinary land-and-building rules from Lesson 35 — long-term after 24 months, taxed at 12.5% without indexation, or 20% with indexation for assets bought before 23 July 2024 (a choice residents keep, NRIs don't) — and the Section 54EC bond route works just the same. There's no special “commercial” capital-gains regime.

Put it together and the headline lands cleanly: for a passive investor, the true tax difference of commercial is GST, not the income-tax head. The head only changes if you turn the property into an operating business — which, for co-living and the like, you very much do.

Suresh has ₹50,00,000 (₹50 lakh) freed up to invest. Back in Lesson 44 he weighed two homes for it — a listed REIT against a second residential flat. Now add the third door he's standing in front of: a small commercial office in Kochi, priced at that same ₹50,00,000. The same money, three ways. Let's run the office honestly and set it beside the other two.

The office, from headline to pocket. A broker quotes it at ~8% — ₹4,00,000 (₹4 lakh) a year, about ₹33,333 a month. That's the gross. Now the haircuts. Commercial sits empty longer, so budget 15% vacancy → effective rent ₹3,40,000. Take out ₹40,000 of property tax and upkeep he bears → net ₹3,00,000, a 6.00% net yield. The “8%” was really 6% before GST even entered the room. Then the swing factor: if Suresh is registered and his tenant reclaims the GST, the 18% passes through and net stays ₹3,00,000 (6.00%). But if the tenant can't claim it — or Suresh stays unregistered and the tenant is registered, triggering RCM — he absorbs 18% of ₹4,00,000 = ₹72,000 → net ₹2,28,000, a 4.56% yield.

Read the reveal. In the clean case the office (6.0%) beats both the flat and the REIT — the higher yield is genuinely there. But in the RCM/absorbed case (4.56%) it lands level with a hands-off, liquid REIT — for far more work and far more risk. So “commercial yields double my flat” is true at the headline (8% vs ~3%) and much softer in the pocket (6% or 4.6% vs ~2.1%); and measured against a REIT, the edge can vanish entirely the moment the GST doesn't pass through. That is the whole lesson in one comparison.

Now add a loan, and watch carry turn negative. Say Suresh borrows. A commercial loan gives him 60% LTV — ₹30,00,000 — at ~10.5%. Year-one interest is ₹3,15,000, which *exceeds* the ₹3,00,000 net rent: the asset bleeds ₹15,000 a year before he's repaid a rupee of principal — negative carry, survivable only if the office appreciates. And to get there he must bring ₹20,00,000 of his own funds, against just ₹10,00,000 for an 80%-LTV home loan on the same ₹50 lakh ticket. Leverage doesn't rescue the office; the dearer, thinner commercial loan can deepen the hole.

The calculator below is Suresh's comparison made live — pre-filled with his office, and yours to bend. Change the price, the rent, the vacancy; flip the GST toggle between “passes through” and “you absorb it,” and watch the net yield move against the flat and the REIT.

One honest note on the benchmarks: the calculator uses round, directional reference points — a typical flat at ~3% and a typical listed REIT at ~6%. Suresh's own realised numbers (2.1% on his flat, 4.6% on his REIT basket last year) sit a little below those round averages, because a specific property and a specific year rarely hit the tidy middle. Treat every yield here as a range to model, never a promise to bank.

Karthik is finishing his own home in Hyderabad and keeps hearing about two “high-yield” alternatives that promise more than a plain let. Both are worth understanding — and both hide the same twist: the higher the headline yield, the more the thing is a *business* rather than an investment.

Co-living / PG. You rent by the bed or room, with services — furniture, wifi, meals, housekeeping, a bit of community. Say Karthik runs six beds at ₹12,000 a month each: that's ₹8,64,000 (₹8.64 lakh) a year gross. Strip out ~40% for food, staff, wifi, utilities and churn and he nets around ₹5,18,400 — roughly 8% on ~₹65,00,000 (₹65 lakh) invested. Attractive — until you name what it is. This is not passive rent: because it's bundled with services it's taxed as business income (actual costs and depreciation, not a flat 30%), it usually needs a local trade licence and other approvals, it attracts GST on the services once turnover crosses ₹20,00,000 (₹20 lakh), and it demands daily management. The “8%” is really wages for running a small hostel — fine if you want that job, misleading if you thought you were buying rent.

Holiday / second home. A place in the hills or by the sea, let on Airbnb and the travel portals when you're not using it. The economics are seasonal: occupancy often runs just 30–45%, the online platforms take 15–25%, and there's furnishing, a caretaker and upkeep. An ₹80,00,000 (₹80 lakh) house at ₹6,000 a night and 35% occupancy grosses about ₹7,66,500, but nets closer to ₹4,63,200 — roughly 5.8% — and that's *before* the personal-use temptation: every weekend you stay is rent you chose not to earn. On tax, a second house you don't occupy can be treated as “deemed let out” (recall the two-self-occupied rule from Lesson 30). More often than not, a holiday home is a lifestyle purchase wearing an investment's clothes — which is fine, as long as you know which one you're buying.

Serviced apartments round out the set: professionally-managed flats let short-term with hotel-like services, where you buy a unit and an operator runs it on a revenue share. Same lesson — it's a hospitality bet, judged on the operator's competence and the tourism cycle, not on a passive-rent yield.

Stand back and the real decision isn't “commercial versus residential” — it's “do I want to run an asset, or own a slice of one?” Direct commercial ownership and a REIT (Lesson 44) are two answers to the same appetite for commercial-grade yield, and they suit very different people.

Direct commercial gives you control (you choose the building, the tenant, the lease), the option of leverage (a loan, if you'll accept the thinner LTV), the full upside of appreciation, and the entire yield. It also hands you a lumpy ticket (₹50 lakh to several crore for one asset), months of illiquidity when you want out, hands-on management, tenant-concentration risk, and the GST and compliance sitting squarely on you.

A REIT gives you the opposite trade. You buy ₹-units on the exchange (a single unit runs roughly ₹100–500), spread across a portfolio of Grade-A properties, professionally managed, distributing about 5.5–7.5% (Suresh's realised ~4.6% last year), and liquid — you can sell in minutes on any trading day. What you give up is control, leverage and the thrill of owning a whole building, and you accept that the unit price swings with the market and that distributions are taxed under the REIT pass-through rules from Lesson 44.

So, education not advice: direct commercial rewards the investor who can do three things — write a big cheque without wrecking their diversification, source and manage a genuinely good tenant and lease, and stomach months of vacancy and illiquidity. If you can't honestly do all three, a REIT hands you most of the commercial yield with none of the management — and for a great many part-time investors, *that* is the smarter play. Neither is “better”; they're different jobs, and the right one is the one that matches the time, capital and temperament you actually have.

Commercial real estate is fertile ground for a particular family of scams, precisely because the tickets are big and the word “yield” sounds sophisticated. The most common ones all lean on the same lever — a return that's promised rather than earned. Read the danger card, then we'll make it concrete.

The card names four tells; here's how the headline one actually plays out. A developer sells you a shop or office and leases it back from you at a “guaranteed 12%” — a sale-and-leaseback with an assured return. For a year or two the cheques arrive and everyone's delighted. Then the mall stays half-empty, or the developer's cash runs short, and the “assured” rent quietly stops — but your loan doesn't. You're now holding an empty unit you overpaid for (the price was inflated to make the guaranteed rent look like a yield), with a guarantee that's only ever as good as the guarantor's solvency. The “pre-leased” variant works the same magic without the leaseback: the unit comes “already leased to a brand at ₹X,” except the lease is short, the tenant is a related party, or the rent is set above the real market purely to justify the price.

The other two tells are quieter but just as costly. A “10% yield” quoted on rent that silently ignores the 18% GST and the RCM trap can be a third lower once you actually can't pass the tax through. And running a shop, office or PG out of a residential flat without change-of-use approval is simply illegal — the unit can be sealed, and it can void your insurance and breach your loan, so a “commercial income” the building plan doesn't permit is income you may not get to keep.

Maybe you're reading this a little late. You signed for a “pre-leased” shop at an assured 12%, and eight months in the rent cheques stopped. Or the “tenant already in place” turned out to be the developer's own shell company. Or a GST notice landed for RCM you never knew you owed. First, set something down: this is not a story about you being foolish.

These schemes are engineered to look like sound investments — glossy brochures, a real-sounding rent, a lease you can hold in your hand. Careful, intelligent people walk into them every year, because the opacity is the *design*, not your failing. Blame is the least useful thing in the room right now. Here's what you can still do:

• Enforce the lease or the guarantee. Read exactly what you signed. If there's a rent guarantee, it's a contract — send a written demand, then a legal notice, then sue if you must. (It's only as collectible as the guarantor is solvent, but the paper matters either way.)
• Regularise the GST. If an RCM or GST liability has surfaced, a GST practitioner can compute and file it, claim input credit where you're eligible, and respond to the notice within time. It's a fixable compliance gap, not a crime — the worst move is to ignore the notice.
• Re-let at the real rent. Drop the fictional “assured” figure and price to the genuine market. A lower true rent from a real tenant beats a high imaginary one from a vanished guarantee.
• Exit if the asset is sound but the scheme was rotten. Sell it for what it's honestly worth. If you take a capital loss, it can be set off against other capital gains (Lesson 35) — small consolation, but real.
• Report the mis-sale so the next person meets a warned market rather than the same showroom (the ladder is in the next section).

When a commercial deal goes wrong, the recourse ladder runs from the counterparty at the bottom to the courts at the top. Climb it in order — each rung builds the paper the next one needs.

1. The counterparty first. A written demand or a lawyer's legal notice to the developer, seller or tenant often moves more than you'd expect — and it's the record every later forum will ask to see.
2. RERA — if it's a registered project. Many commercial projects (over 500 sq m or 8 units) must register, so you can file with your state RERA for false inducement or a refund-with-interest (the Authority handles refund/possession; the Adjudicating Officer handles compensation), then appeal to the RERA Appellate Tribunal.
3. The GST authority. For an RCM or GST mis-statement — or simply to regularise your own position — go to the jurisdictional GST office or the grievance channel on the GST portal.
4. Free / low-cost help. The state RERA portal, the National Consumer Helpline (1915), your bank's grievance cell for a loan dispute, and the e-filing / CPGRAMS grievance for a tax matter — none of which cost a rupee.
5. A paid lawyer or CA when the amount and complexity justify it — enforcing a lease, a large GST exposure, or a title problem is not a do-it-yourself job.
6. Escalation — the forums. The consumer forum for mis-selling and deficiency (District up to ₹50 lakh, State ₹50 lakh–2 crore, National above ₹2 crore); the civil court for enforcing a lease or recovering money; and the police / Economic Offences Wing plus the cybercrime portal (cybercrime.gov.in) where it's outright fraud.

The questions readers ask most about going commercial, answered plainly.

Is commercial really a better yield than my flat? At the headline, yes — often two to three times (say 8% vs 3%). In the pocket the gap shrinks: after vacancy, costs and GST an office nets more like 6%, or ~4.6% if you must absorb the GST, against a flat's ~2%. Real, but not the doubling the headline suggests — and bought with more risk.

What GST do I pay on a shop or office? Buying under-construction: 12%, but *with* input tax credit. Renting it out: 18% on the rent. Selling a ready, OC-issued unit: nil — the same as a ready home.

What is RCM on rent, and does it hit me? Reverse charge: since 10 October 2024, if you're an unregistered landlord letting to a GST-registered tenant, the *tenant* pays your 18% GST and reclaims it. It makes your unit the less convenient choice, which is why many commercial landlords register voluntarily.

Do I lose the 30% deduction and 24(b) interest on commercial rent? No. A bare commercial let is Income from House Property, with the same 30% standard deduction and uncapped interest as a flat. You only move to business income if you let it bundled with services or as your business.

Can I get a home-loan-like loan for commercial? Not on the same terms. Commercial-property loans cap LTV lower (~55–65%), price higher (~9–12%), and underwrite the tenant and lease. If the unit is already leased, lease-rental discounting can lend against the rent itself.

Commercial or a REIT — which should a busy person pick? If you can't write a big cheque, manage a tenant, and sit through vacancy and illiquidity, a REIT gives you most of the commercial yield hands-off and liquid. Direct commercial is for those who can do all three and want the control.

Is a “pre-leased, assured 12%” unit a good deal? Treat “assured” or “guaranteed” as a warning, not a feature. Verify who the tenant really is, how long the lease is locked, whether the rent survives in the open market, and model the GST and a vacant year yourself.

Is co-living or a PG passive income? No — it's a services business. It's taxed as business income, usually needs a trade licence, attracts GST on services past ₹20 lakh turnover, and runs on daily management. Judge it as a small enterprise, not as rent.

Can I just rent out my flat as an office or shop? Only with change-of-use / commercial approval and your society's and the plan's permission. Unapproved commercial use of a residential unit is illegal, can be sealed, and can void your insurance and breach your loan.

Will a holiday home pay for itself? Rarely, as an investment. Seasonal occupancy, platform fees and upkeep usually net ~4–6% before you use it yourself. It's generally a lifestyle purchase — enjoy it as one, and don't count on the rent.

Every term introduced in this lesson, gathered in one place.

• Commercial formats — the main investable types of commercial property: office, retail/shop, co-working and warehousing/logistics, each with its own tenant, lease length and yield.
• Commercial yield / cap rate — a commercial property's net operating income divided by its price; a like-for-like measure of an asset's earning power before your loan is considered.
• Gross vs net yield — gross is the full annual rent ÷ price (the broker's headline); net is what's left after vacancy, costs and any GST you can't pass on. Always compare net.
• Vacancy & tenant-concentration risk — commercial units sit empty longer than homes, and a single-tenant unit is all-or-nothing: one exit and the income is zero.
• GST on commercial — 12% *with* input tax credit on an under-construction commercial purchase; 18% on commercial rent (residential-for-residence rent is exempt); nil on a ready/resale sale.
• Input Tax Credit (ITC) — the GST a registered business paid on its inputs, set off against the GST it owes; “with ITC” makes a headline rate far less costly for a business.
• Reverse Charge Mechanism (RCM) — where the recipient (tenant), not the supplier (landlord), pays the GST; since 10 Oct 2024 it applies when an unregistered landlord lets to a registered tenant.
• Commercial-property loan — a loan to buy commercial space, with lower LTV (~55–65%) and a higher rate (~9–12%) than a home loan, underwritten on the tenant and lease.
• Lease-rental discounting (LRD) — a loan advanced against the future rent of an already-leased property; the bank lends against the tenant's covenant and the lease's remaining term.
• Negative carry — when the loan on an asset costs more than the asset nets, so you fund the gap out of pocket and rely on appreciation (revisited from Lesson 3).
• Co-living / PG — renting by the bed or room with services (furniture, wifi, meals); a services business taxed as business income, not passive house-property rent.
• Holiday / second home — a second property let short-term when unused; seasonal occupancy and platform fees usually make it more lifestyle purchase than investment, and it can be “deemed let out” for tax.
• Serviced apartment — a professionally-managed unit let short-term with hotel-like services on a revenue share — a hospitality bet rather than a passive let.
• Assured / guaranteed return — a promised rent underwritten by the seller rather than earned from a real tenant; a classic red flag in commercial pitches.
• Sale-and-leaseback — you buy a unit and lease it straight back to the seller, often at a “guaranteed” rent that collapses when the seller can't pay.
• Pre-leased — sold as “already leased to a tenant”; verify that the tenant is real and unrelated, the lease is meaningfully locked, and the rent is a true market rent, not one inflated to justify the price.