Is this a good investment? - management issues

daleuk_3

Ok. Let me start by saying I know its a risk. But is it worth it? (I am a risk taker!)

I have an accepted offer on an apartment (leasehold). In a small converted house of 5 units. It is a repossession.

Accepted offer £46000.
Converted in 2007, lease was bought for £150k..
Originally advertised by the agent at £99500, then dropped in stages all the way down to £59950.
Mortgage works out at only £170ish pm.
Potential rental value of min. £400+ pm.

Now you ask why the hell is this? Well the apartment block has issues with its freeholder/management (P.I.D.G Limited No. 6259278). They was dissolved (bankrupt) on 3/11/09. and the freehold was also held by them. It is my guess that this has now returned to the crown... or an administrator?

I have had many discussions with my lender and they are happy that with the circumstances, as long as the price paid reflects any issues (the valuation is more than the purchase price). I will also buy buildings insurance (the lender has informed me that cover for my flat will suffice?)

My intension would be to let it out whilst I try to resolve the issue with the management company. If I can resolve this, in a similar market as of today, it should sell for no less than £85k. Returning a nice profit.

I suspect similar things happen quite often with apartment blocks. What is the likely hood over the coming years that this will resolve itself? Will the crown auction off the freehold? if so will the freeholder automatically appoint a management company? I know there are websites on this but its all very confusing and I haven’t managed to get my head around it all yet. I know that the residents could club together and setup our own management company, but this wouldn’t be my preference as it sounds like alot of work.

Any help fully appreciated. I will keep this thread up to date with my progress. So get your subscriptions in! :mad: or :T

Fire_Fox

This website explains everything leasehold in as plain English as you will get from anyone on MSE, with the added benefit that it is 100% accurate: http://www.lease-advice.org/publications/
Does your conveyancing solicitor have specialist knowledge in the field of leasehold properties, service charge disputes management issues? If not find one who does, or with a partner in the firm who does.

I think you should assume this issue will NOT sort itself of it's own accord, and in the mean time serious issues may crop up (roof leaks, communal electricity unpaid and cut off, front door broken, part of fire escape collapses). You may well also have issues with building's insurance unless the leaseholders can cooperate. Bear in mind some of these issues may affect your ability to let the flat as landlords have a duty of care.

If the freehold is to be sold, the leaseholders should be given the right of first refusal. As far as I understand, the right to collective enfranchisement (buy the freehold) is not the same as the right to manage - you could buy the freehold and then employ an experienced caretaker to do the lion's share of managing the property.

I think you only need half the flats to agree in order to purchase the freehold but, as instigator, you may have to do all the legwork! Hopefully you will find it easy to get people on board, since your neighbours should want to maximise their own profits (or at least minimise their losses given the financial climate).

As a veteran of a three year unresolved dispute with our (now-ex) management company, it is a LOT of work learning about the legislation surrounding leasehold properties and service charges. In your case the potential rewards are definitely worth the input in time reading the LEASE website, composing letters and chasing people up!

daleuk_3

Thanks firefox.

I will have a good read of the lease website. I have done a few times but there soo much.
At this moment I wouldnt be able to buy the freehold myself. So say the freehold has gone bona vacantia. If the leaseholders do not come forward to purchase. Will the treasury sell the freehold off?

If so, it would then be there responsibilty to appoint a management company etc.

I think it is a huge risk. But the rewards are potentially huge too. So im going to try and take it.

Fire_Fox

The LEASE website is crammed full of useful information, if you want an easy path don't buy this flat! Your query seems apparently straightforward, so it will probably be covered on the LEASE website. As I asked does your conveyancing solicitor have specialist knowledge in the field of leasehold properties, service charge disputes management issues?

daleuk_3

Fire_Fox wrote: »

The LEASE website is crammed full of useful information, if you want an easy path don't buy this flat! Your query seems apparently straightforward, so it will probably be covered on the LEASE website. As I asked does your conveyancing solicitor have specialist knowledge in the field of leasehold properties, service charge disputes management issues?

I have yet to appoint one. Will be doing so early next week. But I will definately ask if this is the case.

clutton_2

if there is no operating management company some lenders will not touch such a flat with a bargepole... what will you do if the roof needs replacing - how will you persuade all the flatowners to contribute

the price has dropped by this substantial amount for this very reason... presumably other prospective purchasers have tried the same tack and given up....

so i think you will have difficulties selling this on....

an "equity paper profit" is not worth diddly squat