Buying the remaining flat and then the freehold

[Carryon Regardless]

Following on from the previous thread and the prospect of buying the 1 flat of the 6 I don't own, and then buying the freehold.

I'm more or less decided to go for the last flat, just to have control really.

There are negative. As I believe values might take a dive again from the middle of next year I could see negative equity.

2007 values were realistically at £82k, by 2011 I could only get offers at £50k. the seller says he has a valuation at £65k. Prices have risen locally but I would think a little less than £60k to be realistic.

Soon interest rates will rise, sooner than promised and from that possibly higher than previously thought likely??

With total control and good management I should suffer less losses. Previously I've had to sometimes 'settle' for an applicant and we know where that takes us.

Does the whole become significantly more valuable to an investor if I have all to sell in future ?

Going back to approx 2006 the freeholder offered the freehold for £10k and I agreed. They had issues with the land title and many, many months later their 2nd solicitor had managed to sort things. By this time we were well and truly in the credit crunch. I had funds available but considered that as the only purpose for the land was for the flats and they had seriously devalued then so had the freehold.

Flat 5 (the last flat) was being a real git by this time and I was feeling less energetic toward the whole. I had / have rights that wouldn't change by ownership and I pay £25 per year per flat for ground rent. With ownership I become liable to sort out issues with flat 5, drainage, fencing.... that would go against the grain for me.

With such minimal ground rent is the purchase justified ?

The freeholder has such little interest I can do as I like anyway and they are at some distance so don't monitor.

What value is the freehold to me ?

Will the whole become more valuable if I have the freehold to sell ?

Ground rent doubles to £100 in 2017, still pretty low.

The lease runs till 1st June 2083 so it'll see me out and my kids.

Any thoughts ?

[Grampa]

Well you have a number of options once you own all the flats and the freehold.

You could change all the leases to new ones with 99 years (not 125) which will make them more desirable and put value on the flats.

At the same time you incorporate into the lease a raise to the ground rent to the highest possible for the area plus another increase in say 25 and 50 years but you wouldn't pay it as you are F/Holder, this would put value on the freehold if you were to sell (FH) at a later date.

Most people are only concerned with the length of the lease and service charge amount and not the ground as it is relatively small in comparison.

You could then do the block up make it more desirable and sell on the leases but keep the FH. You then manage the block charging somewhere between 125 - 350 per unit pa, collect the ground rent, charge for the leaseholder questionnaires on every future sale for minimal work. Or give it to a managing agent and just keep the ground rent. Every year you keep the FH the value should increase because the leases are getting shorter.

Or sale the flats with a interest in the FH each but I don't think that makes much difference to "normal" people if the lease is long enough.

[Richlist]

What are the service charges and are these currently payable to the freeholder ?

Does the freeholder arrange the buildings insurance ?

Does the lease allow for the freeholder to charge for....alterations, permission to let, permission to keep animals, etc

[Carryon Regardless]

No service charges,

any works should be divided by 6 but since 2000 I've not been charged, doesn't mean it won't happen though,

yes insurance arranged by freeholder charged at a little over £100 pa,

no mention in the deed regarding the other possibles, I was charged £150, I think, when I bought the last flat in 2007.

If I was owner of many freeholds I can see a pension possibility from the charges I could raise. I'm not sure of the possibilities here but would be surprised if the 6 could be very fruitful.

On the downside as freeholder I would need to come out of retirement, effectively, to manage any major works in the future.

Then I assume I should fund these and try to recover the cost from future owners as there is no fund.

[Grampa]

If managed correctly either yourself or a agent to generate a budget every year and build up a reserve fund to cover any works. So if you had a flat roof you would get a company to access the F/Roof and they would give an estimate of the cost and estimate of when it is likely to be done so you plan ahead for works and also have a sinking fund to cover anything else.

[Richlist]

Most properties require regular maintenance.......outside decoration every few years, maintenance of common areas eg cutting of grass / trees, regular cleaning of stairwells and entrances etc. As a freeholder it would make perfect sense to safeguard your investment by ensuring that cleaning, repairs & maintenance was carried out promptly & regularly.

Reserve funds or sinking funds mentioned by Grampa are the usual way of building up a sum of money to cover larger expenses such as external decorating or an unexpected repair.

Freeholders usually add on their own admin charge for each element of work eg arranging the buildings insurance, providing permissions, organising & overseeing repairs & maintenance etc. It can provide quite a good return on investment BUT the devil is in the detail or more particularly its in the lease.

[Mortitia]

Is the block as whole likely to be more valuable in the future as it is OR could it be worth re-development of some sort?

Sometimes Cor you write as if it is doom city. Is the area that bad?

In my area this would definitely be a possible solution - if not to develop yourself but sell on the entire site to others.

If you did own the block/freehold and intend to sell the units individually are individuals in your area ever likely to buy the flats? Unless you sell to investment buyers seems the scum tenants may always cause tensions.

[Carryon Regardless]

The block was built in 82 / 83 so is a modern design. There is no gas supply and that would be preferable but at least I save on the annual inspections.

The area is depressed but not dire. There are much worse areas so a better class of T is feasible.

Due to Flat E the block has developed a bad reputation but it seems only around 30 % of applicants are aware of this, some actually know and like him so they get no further with me.

With the total control I do believe I can manage for a better environment. The site does have aesthetic improvement potential.

To demolish and rebuild something would have no economic advantage that I can see unless it was for small office units, possibly. As we know there are many High St units available for this sort of thing and not far away, so here I see the challenge of competition.

What would work for the location is if MacD could also acquire the couple of properties alongside they could develop a drive through that would do well. That's beyond my scope though.