Should you bother looking at leaseholds or not?
As you may or may not be aware currently 4/10 new properties in England and Wales are now sold as LEASEHOLD!
Last April (2017), it was recorded there was 4,000,000 dwellings in England alone that were leasehold.
So what is the difference between a leasehold and a freehold?
If you purchase a FREEHOLD property it effectively means you own the BUILDING and the LAND it sits on.
However, If your property is leasehold, you hold the property on behalf of the freeholder and RENT the home until your LEASE expires.
Leases can range in their length. Usually common numbers include, 60,99,999.
So what else?
Ground rent! Something that can be sometimes often overlooked is ground rent which is an annual charge the leaseholder must pay to the owner of the freehold.
Although initially a fixed AMOUNT, your LEASE may contain a CLAUSE which allows the landlord to increase the cost payable every 5 to 10 years from the date of build.
Ensure your solicitor finds out about this to save yourself BIG OUTGOINGS a few downs the line hurting your cash flow!
Yes service charge!
This is a FEE that is payable by all residents which contributes towards the upkeep/maintenance of the BUILDING.
This OFTEN includes cleaning of communal areas, outdoor areas and general maintenance.
Similarly, the fee is often fixed but again can CHANGE year-on-year.
So once again please find out from your solicitor beforehand.
Things you should enquire about therefore prior to PURCHASING a leasehold property:
- The number of years left on the lease
- Ground rent details and whether or not if or they will Increase over time
- The annual service charge costs and if they are to change
- Any other unrelated fees (event related/shares ownership etc)
- Total balance of sinking fund (the amount should you sell that will be paid and retained as capital to cover any repairs which may have appeared during your residence at property)
- Any unusual restrictions / covenants
So to conclude, yes LEASEHOLDS can be a great property investment strategy but just make sure you’re doing the necessary due diligence as with any VENTURE to ensure your investment!