Are freehold ground rents a good investment?Make Text Bigger
I have just started investing in property.
Living overseas, I have been unable to get a U.K. mortgage so I have had to pay cash for my first property.
I have a good rental yield of 10.1%, but obviously no leverage for now. I am arranging more business commitments in U.K. to eventually remedy the mortgage problem.
My question is this:
I have been looking at, but not buying, Freehold Ground Investments which I often see available:
For example, £3,000 buys the freehold ground rent for 125 year (or less) leases paying £300 per year (S5(b) Notices have been served under the Landlord & Tenant Act 1987). Not a lot of money each year, but still 10% yield.
My question is this. Would a portfolio of these types of investments qualify for a loan for reinvestment into buy to lets?
The 10% yield from the Freehold Ground Investments could be used to pay off this initial loan.
For example, £400,000 invested in freehold ground rents should produce £40,000 per year.
A 75% LTV would be £300,000 which you could pay back using the ground rent income of £40.000 pounds per year.
Use the £300.000 as £30,000 75% buy to let (for example) deposits on 10 houses (or go up north and buy 8 for cash, then re-mortgage, or whatever the permutation gives most yield???).
The 10 properties, if bought wisely could be refurbished re-valued as usual to earn the required yield. The debt would be paid by the freehold ground rent investments.
I know you could just use the initial £400,000 pounds direct into property but the freehold ground rents look to be low maintenance no void investments. Their value rises as time passes and looking (as I am) to leave the property portfolio for future generations, so long as the yields are good, the investment vehicle (within the property portfolio) is just a money generating wealth creating exercise, and one day, someone will be grateful for present day foresight.
I would appreciate comments regards Freehold Ground Investments and the possibility to obtain loans using them for the purchase of properties.
Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.