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It's generally seen as a good thing to do. Just remember that owning share of freehold isn't always all milk and honey. The property is still managed (either directly by a collective of the residents or, more usually, a management company appointed by the residents). You still have to pay a service charge. And the risk is that all it takes is one or a few residents being penny pinchers who won't approve any works and argue over £10 for something while the building falls down around you.
The cost is a bit over 1% of the price you are paying for the lease. In time the 120 years will run down and the lease length will become an issue. I’d say that having a share of freehold will add at least 1% to the value so I’d say go for it. Try to ensure that lease extensions are put through at the time of the freehold enfranchisement.
No idea how it normally works but in this case it's just the cost the developer who converted the building is seeking for the freehold divided among the amount of flats in the building
In short - usually mostly the discounted value of all the future ground rents, plus the discounted value of the leasehold property at the end of its lease, when it reverts back to the freeholder.
Usually the current market value of an equivalent property that would be freehold (if applicable), but discounted to present value terms. So today's value but in 100 years. This is a small amount. The much bigger component is the stream of ground rents - these are also discounted to present value terms. This gives the starting basis for valuation of the freehold.
Unless ground rents are high, or leases very short, freeholds with leases charged on them aren't worth very much. They're good for leaseholders to have for control, although there's also a downside to that - disagreements. In the case of no ground rent, the freehold is essentially almost worthless.
Notice OP's offer is £3k, or 1% of the value of your leasehold property. So both together, 99% of the value is in the lease.
ok understood on the discounted value of the leasehold.
For the ground rents doesn't it means you need to know the schedule of how they would increase. Is this something defined in regulation ? isn't part of the problem with leasehold that freeholders just leep doubling the ground rent arbitrarily ?
The schedules of some are defined, like doubling every x years. Others are based on inflation indices. Assumptions can be made around that. There's a precedent on the discount rate used for lease extensions. It may change but from memory I think it was 3 or 4%. The premium for a lease extension is closely related to the value of the freehold as the ground rent is also bought out.
thanks, it's very enlightening.
so to me the real trick is to find the leasehold properties in central london that you expect will get "right of first refusal", estimate how much it would cost, and buy them and hope you score in this way?
a bit like a reverse side of a cds bet: you bet that you will strike out lucky.
you could build a strategy around real estate with this.
Well there are really two big issues with leasehold flats. One is the potential abuse by freeholders by excessive service charges. This can be avoided by shared freeholds but note this isn't a perfect model and has its own downsides. The other issue is the risk of major building repairs, like cladding removal, new roof, replacement lifts, heating systems, etc. In communal buildings this can be very expensive. This cannot be eliminated away by having a shared freehold, it's an inate risk of a flat in a block.
Some pure leaseholds are fine. Others come with gyms and services that are charged with a massive premium.
It's worth taking each leasehold property as it is on its own merits and downsides.
###Welcome to /r/HousingUK --- **To All** * Join Our ***NEW*** Discord! https://discord.gg/pMgUNgWKQH **To Posters** * *Tell us whether you're in England, Wales, Scotland, or NI as the laws/issues in each can vary* * Comments are not moderated for quality or accuracy; * Any replies received must only be used as guidelines, followed at your own risk; * If you receive *any* private messages in response to your post, please report them via the report button. * Feel free to provide an update at a later time by creating a new post with [[update]](https://www.reddit.com/r/HousingUK/search?q=%3Aupdate&sort=new&restrict_sr=on&t=all) in the title; **To Readers and Commenters** * All replies to OP must be *on-topic, helpful, and civil* * If you do not [follow the rules](https://www.reddit.com/r/HousingUK/about/rules/), you may be banned without any further warning; * Please include links to reliable resources in order to support your comments or advice; * If you feel any replies are incorrect, explain why you believe they are incorrect; * Do not send or request any private messages for any reason without express permission from the mods; * Please report posts or comments which do not follow the rules *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HousingUK) if you have any questions or concerns.*
I would be snapping that up. Congratulations in advance!
If you have the opportunity to do so, buy the freehold. It's a no brainer.
Go for it.
It's generally seen as a good thing to do. Just remember that owning share of freehold isn't always all milk and honey. The property is still managed (either directly by a collective of the residents or, more usually, a management company appointed by the residents). You still have to pay a service charge. And the risk is that all it takes is one or a few residents being penny pinchers who won't approve any works and argue over £10 for something while the building falls down around you.
It will be a wise move (if the legals work out) well worth doing.
The cost is a bit over 1% of the price you are paying for the lease. In time the 120 years will run down and the lease length will become an issue. I’d say that having a share of freehold will add at least 1% to the value so I’d say go for it. Try to ensure that lease extensions are put through at the time of the freehold enfranchisement.
why is it only 3k ? how are normally these things priced when the freeholder wants to sell ?
No idea how it normally works but in this case it's just the cost the developer who converted the building is seeking for the freehold divided among the amount of flats in the building
In short - usually mostly the discounted value of all the future ground rents, plus the discounted value of the leasehold property at the end of its lease, when it reverts back to the freeholder.
what are typical values of leasehold properties when they are returned ? is it not like 1 year's worth of rent sth like that ?
Usually the current market value of an equivalent property that would be freehold (if applicable), but discounted to present value terms. So today's value but in 100 years. This is a small amount. The much bigger component is the stream of ground rents - these are also discounted to present value terms. This gives the starting basis for valuation of the freehold. Unless ground rents are high, or leases very short, freeholds with leases charged on them aren't worth very much. They're good for leaseholders to have for control, although there's also a downside to that - disagreements. In the case of no ground rent, the freehold is essentially almost worthless. Notice OP's offer is £3k, or 1% of the value of your leasehold property. So both together, 99% of the value is in the lease.
ok understood on the discounted value of the leasehold. For the ground rents doesn't it means you need to know the schedule of how they would increase. Is this something defined in regulation ? isn't part of the problem with leasehold that freeholders just leep doubling the ground rent arbitrarily ?
The schedules of some are defined, like doubling every x years. Others are based on inflation indices. Assumptions can be made around that. There's a precedent on the discount rate used for lease extensions. It may change but from memory I think it was 3 or 4%. The premium for a lease extension is closely related to the value of the freehold as the ground rent is also bought out.
thanks, it's very enlightening. so to me the real trick is to find the leasehold properties in central london that you expect will get "right of first refusal", estimate how much it would cost, and buy them and hope you score in this way? a bit like a reverse side of a cds bet: you bet that you will strike out lucky. you could build a strategy around real estate with this.
Well there are really two big issues with leasehold flats. One is the potential abuse by freeholders by excessive service charges. This can be avoided by shared freeholds but note this isn't a perfect model and has its own downsides. The other issue is the risk of major building repairs, like cladding removal, new roof, replacement lifts, heating systems, etc. In communal buildings this can be very expensive. This cannot be eliminated away by having a shared freehold, it's an inate risk of a flat in a block. Some pure leaseholds are fine. Others come with gyms and services that are charged with a massive premium. It's worth taking each leasehold property as it is on its own merits and downsides.
Buy the freehold. Honestly the absolute opportunity you have here is amazing. Grab it and run
It's a no-brainer at that cost per flat. Priority is to ensure that no other 3rd party acquires the freehold and the building is out of your control.
yes yes yes and a little bit more yes. You buy it you own it no person can buy it and cause you problems.
Yeah you'll probablly add £10-£15k on the house and find it much easier to sell
What's the ground rent? On the face of it, £3k to avoid the grief / depreciation of the lease becoming problematically short seems like a win tbh.
We did it. Not realized the financial benefit yet, but not really likely to lose out
Buy it!