14 flats with only 50 years remaining on lease

by Readers Question

10:22 AM, 20th February 2015
About 4 years ago

14 flats with only 50 years remaining on lease

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14 flats with only 50 years remaining on lease

Bought these 14 flats approx. 8 years ago when the market was on the up with the idea of paying for the lease extensions through the increase in values over the following years. I paid around £80k each for them on interest only mortgages with a deposit of 15%. Now with only about 50 years remaining they are only worth about £50k (£75k with the extended lease). 14 flats with only 50 years remaining on lease

I am looking for advise as to what other readers would do in my situation.

Many thanks

George



Comments

Mark Alexander

10:29 AM, 20th February 2015
About 4 years ago

Hi George

The first question that popped into to mind is how much would the lease extensions cost and how would that affect the property values?

My second thought was; how much money do you have, i.e. are you solvent and would you be in a better or a worse position if you were to pay for the lease extensions?

My thoughts then turned to cashflow. Are you making money on this portfolio?

What do do next is highly dependent on your answers to these questions.

I am hoping that you are not going to say that you are insolvent and losing money and that buying the lease extensions will not improve your position because if that is the case then bankruptcy would seem to be your ONLY option.

At this stage it seems that you made some unfortunate decisions in terms of market timing and what to buy. Clearly you are looking for a way to turn aroud this misfortune and I hope that we will be able to help you to achieve that in this discussion thread.
.

Stephen Barham

11:10 AM, 20th February 2015
About 4 years ago

Hi George,

Another option to look at would be buying the freeholds, I understand you would have the right to do this providing you own at least half the flats in any one building.

Cheers,
Stephen

George Harrison

11:24 AM, 20th February 2015
About 4 years ago

Reply to the comment left by "Mark Alexander" at "20/02/2015 - 10:29":

I believe the lease extensions would cost up to £15k each and would add approx. £25k to the selling price. I don't have the £200k to extend the leases but I am solvent and with my other properties I am making up to £8k per month net profit. On these 14 properties I am making approx. £3.5k per month

George Harrison

11:32 AM, 20th February 2015
About 4 years ago

With 8 of the flats I have the option to buy the freeholds

Ian Ringrose

11:46 AM, 20th February 2015
About 4 years ago

Longer you wait more the lease extensions will cost.
If I understand correctly, an increase in property values will also put up the cost of the lease extensions.
You will have to pay off your interest only mortgage one day.

Sorry I can only see pain!

If you stop spending money (even get a job) you should be able to use your profits on all your properties to buy one lease extension ever 2 months.

Each flat you sell after you have the lease extension gives you about £5K more cash.

I think you may need to sell your other properties to fund the lease extensions (or buy the freehold)......

With 14 flats, adding value and increasing rents with new kitchens, bathrooms etc maybe a good return, setup on a production line bases the costs may be lower then expected.

Mark Alexander

11:56 AM, 20th February 2015
About 4 years ago

Reply to the comment left by "George Harrison" at "20/02/2015 - 11:24":

Hi George

It seems the only options you have then are:-

1) To save as much money as possible from your cashflow to purchase the lease extensions one at a time

2) Do nothing, retain the cashflow and leave your mortgage lender to deal with the issue at the end of your mortgage term or when you die, whichever is sooner.
.

George Harrison

11:59 AM, 20th February 2015
About 4 years ago

When I bought the flats I did a full refurb on all of them inc new kitchens and bathrooms. The properties are obtaining their maximum rents unfortunately there is abundance of flats in this area so rental prices are not going up in fact there is a small decrease

Steve Masters

12:24 PM, 20th February 2015
About 4 years ago

Reply to the comment left by "Stephen Barham" at "20/02/2015 - 11:10":

Regards buying the freehold, it is my understanding that half the OWNERS need to agree to buy the freehold so you would count as 1 not 8.

George Harrison

12:35 PM, 20th February 2015
About 4 years ago

Reply to the comment left by "Steve Masters" at "20/02/2015 - 12:24":

Most of my flats are in blocks of 4 and I own 2 in each

Ian Ringrose

12:38 PM, 20th February 2015
About 4 years ago

A "sensible" lender would be happy pay for the lease extensions and add the cost to your mortgage it it will increase the value of the property by more then the cost.

Something tells me this will not happen in real-life...

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