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  • FIRST POST
    Happyclappy
    Life tenant investment properties - leasehold questions etc
    • #1
    • 10th Oct 13, 11:44 AM
    Life tenant investment properties - leasehold questions etc 10th Oct 13 at 11:44 AM
    Hi all,

    I'm wondering if anyone has any experience or words of wisdom to offer regarding this?

    I've been thinking for a while that I'd like to get my savings out of the banks and into something more solid, like property. Actually, I love property and feel really drawn to investing in it. I've worked as a lettings property manager in the past so am not entirely new to the buy to let thing though also, a bit put off by all the possible pit-falls. Then I found out recently about an alternative to B2L: buying property at a reduced price, where there is a life-time tenant in place. If I've understood things correctly, it seems relatively easy. The tt is responsible for all the maintenance and management fees and stays there until they die or go into full-time care. The owner doesn't get any rent but buys the property at a reduced price and waits as (hopefully) property prices go up.

    So, what are the pitfalls?
    (I'm hoping that people here might be able to help me with this...)

    - Well, the tt could end up living there for 20-30 years. (They're usually 65-73 from what I've seen so far.) So, there can be quite a long wait before you can have the property for yourself to rent, sell or live in. I'm not too worried about this - it seems like a pension plan to me. (Should I be concerned about this though?? I don't know.)
    - The tt might not maintain the property to your standard (you can visit every 3 years to check.) What happens if they're not maintaining it properly?
    - There's no rent (but no management/maintenance fees either.)
    - Insurance? I haven't found out about this yet. (Anyone??)
    - Could the owner be liable for dangerous gas leaks/electrical faults etc? (I would assume not...??)
    - Leasehold issues?? I've seen one property online which has about 100 years left of a 125 year lease. Should I be concerned about this? I think the tt is about 65.
    - Anything complicated?? Would I need to set up a company in order to do this? Would I have to include it on my tax return in any way? (There would be no income whilst the tt is living there.)

    Overall, it seems much simpler than B2L. But, how does it compare financially with B2L or other property investments in the long-term?

    Many thanks to anyone for any input on this.

    Best wishes all!
Page 1
    • vectistim
    • By vectistim 10th Oct 13, 12:50 PM
    • 610 Posts
    • 419 Thanks
    vectistim
    • #2
    • 10th Oct 13, 12:50 PM
    • #2
    • 10th Oct 13, 12:50 PM
    I believe some of these things can be extended by marriage or by children, which can cause an issue.

    Eventually there will be capital gains to deal with once you can get in and sort the places out.

    It's the sort of market I'd only go into direct if I'd had experience of managing the things. If I were looking to invest in that sort of market I'd probably just by shares in Grainger.
    IANAL etc.
    • Yorkie1
    • By Yorkie1 11th Oct 13, 5:48 PM
    • 11,056 Posts
    • 20,846 Thanks
    Yorkie1
    • #3
    • 11th Oct 13, 5:48 PM
    • #3
    • 11th Oct 13, 5:48 PM
    Not heard of this particular arrangement - the sitting tenant who pays a low rent is more familiar. Are you sure you are fully au fait with the facts?
    • latecomer
    • By latecomer 11th Oct 13, 8:06 PM
    • 4,601 Posts
    • 2,620 Thanks
    latecomer
    • #4
    • 11th Oct 13, 8:06 PM
    • #4
    • 11th Oct 13, 8:06 PM
    One of my folks neighbours has made a fortune doing exactly this during the boom years. Not sure its as viable now as it was then but provided your tenant doesn't live forever then its probably feasible.
    • Jonbvn
    • By Jonbvn 18th Feb 14, 12:24 PM
    • 5,300 Posts
    • 5,574 Thanks
    Jonbvn
    • #5
    • 18th Feb 14, 12:24 PM
    • #5
    • 18th Feb 14, 12:24 PM
    I doubt any lender would be interested in offering a mortgage on such properties..
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot
    • jimjames
    • By jimjames 23rd Sep 14, 12:40 PM
    • 12,236 Posts
    • 10,771 Thanks
    jimjames
    • #6
    • 23rd Sep 14, 12:40 PM
    • #6
    • 23rd Sep 14, 12:40 PM
    If you want a better return than money in the bank why not use the stock market?

    Much less hassle than dealing with tenants and can be held inside an ISA tax free unlike a house.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • vectistim
    • By vectistim 23rd Sep 14, 1:52 PM
    • 610 Posts
    • 419 Thanks
    vectistim
    • #7
    • 23rd Sep 14, 1:52 PM
    • #7
    • 23rd Sep 14, 1:52 PM
    Easiest (and safest) way to do this is to buy shares in the specialist companies (I think some are set up as REITs) that do this sort of thing.
    IANAL etc.
    • kidmugsy
    • By kidmugsy 23rd Sep 14, 1:58 PM
    • 9,895 Posts
    • 6,672 Thanks
    kidmugsy
    • #8
    • 23rd Sep 14, 1:58 PM
    • #8
    • 23rd Sep 14, 1:58 PM
    I found out recently about an alternative to B2L: buying property at a reduced price, where there is a life-time tenant in place.
    Originally posted by Happyclappy
    The classic technique is then to send round some heavies and "persuade" the old biddy to leave.

    I'd have guessed that, except in the case of your planning to use coercion, your only defence against the risks you list is to buy many such properties so that the probabilities can even out. That would leave you very exposed to the political risk of someone in government retrospectively changing the law against your interest.
    • MissyD
    • By MissyD 13th Nov 14, 9:45 PM
    • 129 Posts
    • 115 Thanks
    MissyD
    • #9
    • 13th Nov 14, 9:45 PM
    What was your decision?
    • #9
    • 13th Nov 14, 9:45 PM
    @ HappyClappy

    Nice post

    I was just wondering if you proceeded with the life tenant investment? How your finding it?

    Or if not, would you care to share your thoughts/reasons?

    I'm currently considering this for a pension.

    Hope to hear back from you soon
    TARGET Deposit for my 1st house! NEED£30k WANT£45k GOT 1stDRegSaver:£1200@ 6% GROSS 1/10/15||SantanderISA:£11,820.41 @ 2.30% 16/04/16| Newcastle BS ISA:£15,149.80 @ 3.02%|Santander123 Cashback earnings: £274.48|TotalCashSavings:£32,302|Last Update:22/2/15
    • jimjames
    • By jimjames 13th Nov 14, 11:07 PM
    • 12,236 Posts
    • 10,771 Thanks
    jimjames
    - The tt might not maintain the property to your standard (you can visit every 3 years to check.) What happens if they're not maintaining it properly?
    - There's no rent (but no management/maintenance fees either.)
    - Insurance? I haven't found out about this yet. (Anyone??)
    - Could the owner be liable for dangerous gas leaks/electrical faults etc? (I would assume not...??)
    - Leasehold issues?? I've seen one property online which has about 100 years left of a 125 year lease. Should I be concerned about this? I think the tt is about 65.
    - Anything complicated?? Would I need to set up a company in order to do this? Would I have to include it on my tax return in any way? (There would be no income whilst the tt is living there.)

    Overall, it seems much simpler than B2L. But, how does it compare financially with B2L or other property investments in the long-term?

    Many thanks to anyone for any input on this.

    Best wishes all!
    Originally posted by Happyclappy
    Sounds like all current costs and waiting for future possible gain to me. Not my idea of a good investment.

    1) No rent so no income, you have to pay mortgage
    2) You own property so have to insure it every year
    3) You're responsible for annual gas safety check
    4) You're responsible for all repairs

    Simpler than BTL? Maybe but all costs and no income doesn't appeal to me.

    If you want property why not just do a standard BTL?
    Remember the saying: if it looks too good to be true it almost certainly is.
  • Peteronthesouthcoast
    Life tenancy investments
    These are only suitable for people with no foreseeable need of the money, and fairly deep pockets

    As a professional landlord with both a commercial portfolio and BTL's, these have a place.

    I would argue that it is the kind of investment that is most suitable for grandchildren.

    There are no obligations under these investments and no income.

    If you take the view, that over a long period of time, property values will go up and keep pace with inflation, then the figures do stack up with the type of discounts available.

    Tax wise if you give this as a gift to grandchildren in the right way the money you spend on this drops out of your estate thus not incurring IHT. Against this the recipients will have to pay CGT.

    If the worst comes to the worst, it is possible to resell the investment (if you have not given it away). It is very likely to go for substantially more after say 10 years because house prices are probably going to be higher but more importantly the life tenants will be 10 years older.

    Peter
    • SLTrooper1
    • By SLTrooper1 9th Aug 16, 9:40 AM
    • 2 Posts
    • 0 Thanks
    SLTrooper1
    Ref the question on maintenance, thought this may be useful...

    All of the maintenance, upkeep and safety concerns are down to the LO. They are required to “keep the electrical wiring and all electrical and gas installations and apparatus in or exclusively serving the Property in good repair and condition and to ensure that any works carried out or additions to such installations and apparatus are carried out or provided in accordance with applicable statutory regulations “.
    • Pincher
    • By Pincher 9th Aug 16, 9:49 AM
    • 6,516 Posts
    • 2,491 Thanks
    Pincher
    The sitting tenant pays protected rent, so the yield is not high.

    An interesting variation is if you live in the property yourself, so you claim £7,500 Let a Room relief.

    An old lady next door in a previous house I lived in did this.
    She died before the tenant did.
    The son inherited the house, and finally the old tenant died, but her daughter acquired the protected status, probably due to living there for many years.
    Eventually, she was forced out by bully tactics. The son sold it for peanuts 20 years ago. If he had kept it up to now, he would be loaded. Silly billy.
    • macca1974
    • By macca1974 9th Aug 16, 10:37 AM
    • 213 Posts
    • 185 Thanks
    macca1974
    This strikes me as a terrible idea to be honest. I'm fortunate enough to have inherited a portion of a property from my uncle, where my aunt has a life tenancy. She rents out the place and receives the rent and pays for the up keep etc and I will receive the property in the event of her death (hopefully in many many years time). This type of arrangement works well in this scenario as it keeps the property in the family etc, but my aunt gets the benefit of it in her lifetime.

    The key point is though, it hasn't cost me a penny and won't until my aunt passes away.

    If I'd paid even a reduced price for it though, then my money is tied up for the entire lifetime of the life tenant. I'm 40 and my aunt is early 70's. She is clean living and will hopefully outlive her mother who got well into her 90's. So potentially 25-30 years if my Aunt stays healthy. Whilst this will potentially add to my pension, I may well be well be close to 70 before inheriting.

    If I'd paid all my savings into it (rather than inheriting), theres a chance that I'd never benefit if I don't live long enough and who knows! You can't get any money out of the property and I suppose could sell your interest, but it truly would be a sellers market.

    It reminds me of an old story about a man who agreed to pay a 90 year old lady in France 2,500 francs per month until she died, after which he could move into her apartment. When he died at 77, 30 years later, she was still alive at 120, enjoying the 2,500 francs per month. This type of deal is fraught with danger and best avoided.
    • SLTrooper1
    • By SLTrooper1 9th Aug 16, 12:01 PM
    • 2 Posts
    • 0 Thanks
    SLTrooper1
    Hi,

    To confirm, the life tenant does not pay a rent, they only cover the costs associated with maintaining the property.

    Additionally there are no rights of succession.

    Finally, you are free to sell your investment at any time, whether its after one year or ten. It's worth bearing in mind that as the life tenant ages, the value of your investment will increase. Add capital growth into the equation and the fact that you have purchased below the market value would, in my opinion make the investment an attractive one.

    If you are in a position where you have an amount of money which you are prepared to tie up without the need for an income, these type of investments are particularly attractive and certainly not fraught with danger.
    • Simon Dodd
    • By Simon Dodd 29th Nov 17, 3:06 PM
    • 1 Posts
    • 0 Thanks
    Simon Dodd
    Life Tenants
    I've been dealing in Life Tenancies for over twenty years now. They have been the best investments I've made. The first one I purchased was a terrace house in Surrey. The OMV then was just 95k I purchase it for 47,500. 50% OMV. The tenants were aged 64 & 62
    Only one of the tenants remain aged 83 now. OMV now 600k, I could sell with the tenant for 420k but think I'll wait. I only viewed the property twice in twenty years. What better pension fund could I of had?
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