Newbie – needs a bit of advice buying flat and Freehold

by Readers Question

9:55 AM, 18th August 2015
About 3 years ago

Newbie – needs a bit of advice buying flat and Freehold

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Newbie – needs a bit of advice buying flat and Freehold

I am buying my first BTL in an area away from me (my family live there and its much cheaper). I am buying a ground floor 2 bed flat with yard for £69k. should yield £400 month.newbie

However, its a freehold flat and I would own the lease above. No real problem with that as the leasehold pays £50 annual. I would pay the insurance on whole house (approx £250) . as the Estate Agent pointed out, that’s still a lot less then most flat service charges.

also, as I am the freeholder, any work that needs doing to whole house I would need to do a 20 notice to recover other half.

however, I know 10 years plus ago the guy who owned whole house split it into 2 flats and kept the leasehold flat. Not sure if I should be wary of anything

Thanks

Stringer



Comments

Neil Patterson

10:06 AM, 18th August 2015
About 3 years ago

Hi Stinger,

The yield on this property you are considering is quite good at 7%.

Can I assume what you are actually buying is a leasehold flat plus the Freehold as lenders do not like Freehold flats?

I would be cautious here as the ownership structure is quite complicated for your first property and not all lenders like you owning the Freehold as well as the leasehold and may want a management company in place that you do not own. I would check this out very carefully first as even if you find a lender that is happy others may not be and you could be restricting resale value with a property that is harder to finance.

You also run a risk relying on the owner of the other flat always being cooperative.

Mark Smith (Barrister-At-Law)

12:06 PM, 18th August 2015
About 3 years ago

There is also the issue that a freeholder cannot lease to himself alone. Your conveyancer will advise.

stringer bell

15:00 PM, 18th August 2015
About 3 years ago

thanks all

to clarify. I would be the freeholder owning downstairs flat (and yard) the flat above would be the leasehiold (not mine)

natwest have been fine about lending.

one other question, how will proposed tax changes effect me. is there an online calculator. I am a higher rate tax payer, I actually rent with my partner where I live.

Mark Smith (Barrister-At-Law)

15:22 PM, 18th August 2015
About 3 years ago

Who would own the upstairs freehold?

stringer bell

15:36 PM, 18th August 2015
About 3 years ago

the leasholder on flat one would pay annualy 50 pounds to me. i pay building insurance for whole house

Colin Dartnell

20:09 PM, 19th August 2015
About 3 years ago

Hi Stringer

It sounds as though you are buying the freehold of the whole building, and one of the leasehold flats.

The £50 is probably the ground rent so you will be saddled with insuring and maintaining the property and forever chasing money, what happens if the other party decides he doesn't want to pay his share. To much hassle for me, would have been a better deal to have a half share of freehold each and as Neil said set up a management company with monthly maintenance charges to build up a kitty, but that can be a pain if you don't like paperwork.

S.E. Landlord

20:09 PM, 19th August 2015
About 3 years ago

I would ask your solicitor to check the lease of the property upstairs as to your liability to that flat and also what you can charge the flat for. The ground rent is yours and I would expect you to be able to recharge 50% of the insurance costs and also other external maintenance costs.

I would be inclined to put the freehold into a company and have the leasehold flat in my name as it would make it easier to mortgage / remortgage and also to sell at a future date.

David Lovegrove

10:25 AM, 17th February 2016
About 3 years ago

I am considering buying at auction a lot that's contains two leasehold flats.
There are six flats in the block and the lot states I would be buying the freehold of two other flats making four in total.
The legal pack is not yet available and I am puzzled as i would not have thought it possible to have two freeholders in one block or am I mistaken ?
Regardless of this and the additional complications that may cause I have never owned the freehold in other leasehold flats I own and have always assumed to do so would be a lot of hassle.
I have a number of questions for which I would be grateful to receive advise for :
Is there any profit in owning the freehold beyond 5% (? )Management charges ( maybe there is a reasonable profit when extending the leases ) ?
Could I sell the freehold only at any time or would I have to include a flat within the sale ?
How much would I likely receive for the sale compared to the legal costs of selling I.e. Would I lose money ?
Is there likely to be any buyers ?
Would I need to set up a management company and if so does that cost much.
Would I need any licences ?
I am only considering the lot because the interest of the freehold may deter other bidders resulting in a better deal .( I was at an auction yesterday and all properties were attracting 20%-30% more than the guide price).
I am sure there are other matters I should be considering that have not crossed my mind so any help comments would be appreciated.


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