In this blog, Investment Consultant Michael Johns has a look at the benefits of buying leasehold properties, particularly when they are apartment units in larger developments. He focuses on on-site management, communal areas, the average length of a leasehold and the price of ground rent and service charges.
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Please see below the full transcript of the video:
Hi and welcome to the latest Ask Johnsy, and the latest question is from Keith from Rochdale and he’s asked, “why buy leasehold property?”
Now, a lot of people come to us, they’re saying “we need to buy freehold because we believe that…we need to buy freehold, we want the freehold”. Well, leasehold can be cheaper and the reason for this is because the land is retained. But one thing to understand here is, a lot of properties will outlive their lease. So, for example, an apartment block in a city centre of 200 apartments with a 250-year lease, the chances are that after 100-150 years, that building’s going to be outdated and is either going to be refurbed or replaced. So, as long as you’re getting a reasonable lease length, 125 years or more, you’re pretty safe and you can extend that lease at any time you want to in the future as well, given a certain period of time after the purchase.
The good thing about leasehold is that generally speaking it is hands-off, fully managed, so you’ve got a management company on-site that are looking after your property while you’re not there, while it’s being rented out. Those communal areas, those gardens, with a freehold property ultimately you are responsible, or your tenant is responsible for the upkeep of the communal areas, or rather with freehold houses, the gardens are making sure they look nice. Otherwise, that’s going to come back on you. It’s quite difficult to maintain a freehold or some freeholds.
Also, the lease will have certain rules in there that will protect that property or the development. So, it might say, for example, you can’t have more than one satellite dish on the side of the apartments, you see some of these apartments where they’ve got SKY dishes all over the side of the apartments and they look terrible. Also, there’s things about noise and not running a business from the apartment, you know, you don’t want somebody to stick a door on the outside of their apartment and start running it as a shop or something like that, something crazy like that. Also, a lot of leases have a sinking fund. So, that will be a fund of moneys that will be available to update your property in the future and a sinking fund with cover things like the replacement of a roof in the future, or any communal features that need updating. So, you’re not going to be hit with a big bill all at once.
Also, the lease includes a building insurance because you know, if you own one apartment within the building, you can’t just insure that apartment, it’s the actual building that it’s within. So, there we go. That’s why you would normally buy leasehold properties. Thank you for watching Ask Johnsy.
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Read our blog on the differences between freehold and leasehold here.