Should I buy a leasehold or freehold property?

kh888

Hi everyone

I've just joined the forum today hoping to get some good advice

I am a first time UK buyer and looking for a nice buy to let property to rent out.
I have looked at a number of properties and whittled it down to two.
One is a nicely refurbished one bedroom leasehold maisonette costing £105000 with 120 years remaining on the lease. The property is ready for a tenant to move in if I decide buy this property.
The freehold house costing £128000 is in a very desirable area but needs some refurbishment done before renting out.

I was just wondering which would be the better investment in the long term in say 10 years time? My boyfriend keeps saying to me not to buy leasehold saying that I don't effectively own property (ie the land as well), and in the long term I won't gain much when I come to sell it .

What are the pros and cons of both types of property in terms of buy to let/future investment?

In addition, I realise that I need a buy to let mortgage to rent out a property. If I were to purchase the freehold property, I will need a fair few months to refurbish the place to an acceptable standard to rent out. Am I allowed to have a few months without rent coming in while I am on this type of mortgage.

Any advise would be much appreciated

Bluemeanie_2

Agree with your Boyfriend. Buy the freehold one.

olly300

Get the property in the more desirable area as it will be easier to rent out then sell if you so choose so later.

G_M

As a general rule, of course freehold is better, as you own more (land as well as building) and own it for longer, for ever.

HOWEVER. I blieve this is not the question you should be asking yourself. What matters is how rentable each property is.

So consider the area. Consider what target market you are going to aim at. Decide if you want multiple 6 month lets, or 12 month lets, or longer - this will influence target market and hence rentability.

Look at rents achieved by similar properties in the same area to establish a realistic income level.

Also consider running costs. Flats generally have service charges - what are they? What do they cover/exclude? The freehold house - even once 'done up' what running costs will i have? What repairs/maintenance might be needed each year?

You need to do comparable budgets (I mean FULL budgets not back of an envelope) for each.

THEN you can decide.

See here for more.

cattie

People who have never owned leasehold are always negative about it. I've owned 3 leasehold properties in London to date, all have been pretty central & I've made a pot of money each time I've sold. :j

I currently live in a freehold house in a suburban area of London, but currently in process of buying another leasehold flat as I want to downsize and don't want the liability of having to maintain a house and garden any longer.

As long as flat has long lease, is well maintained and in a decent city location area and not a new build, there is no reason why it won't increase in price along with houses in the area.

Lots of couples and singletons prefer flats, thinking a house is more for when they get older and start thinking about properly settling down and starting a family, so flat will always have an attraction for some.

The best long term plan is to go for the location which is more desirable, as it will always be considered more sought after.

kh888

Thanks to all who replied

I'd like to additionally add that the freehold property is a one bedroom house just over 5 miles outside town while the leasehold property is pretty much within walking distance of most of the main town's amenities.

I'm certain that the freehold property will sell for more one I do it up, but from a rentals prospective is the freehold property still the better option seeing as though I'm hoping to rent it out for a number of years?

In terms of mortgages, can I get a residential mortgage while I'm refurbishing the freehold property for a number of months and then ask for consent to let?, or do I need to go straight on to a buy to let mortgage even if I won't be having any tenants in for a few months while the refurbishing is being carried out?

la_farfallina

I have a leasehold flat which is a two minute walk from a station which gets you into central London in 15 minutes.

I have had letters posted through my door from estate agents informing me that they have people that are looking to buy flats in my exact location.

Ok, so this may or may not be the case. However, the same flats on my little estate are being advertized on Rightmove for rentals of £750 - £800 per month.

I agree with Cattie on this one....there are still a lot of people that would prefer a flat for now (myself included), especially if it is close to all amenities.

DVardysShadow

G_M wrote: »

You need to do comparable budgets (I mean FULL budgets not back of an envelope) for each.

One of the important aspects of a budget is the exit from renting out. A maisonette with a 120 year lease will be a maisonette with a 95 year lease in 25 years time, whereas the house will still be a house with a freehold in 25 years time.

At the length of lease you are looking at, of course, the issue is not very serious, but for shorter leases, it could be an important consideration.

Gentoo365

Leasehold means that you have some level of control over the residents in the same building. This is needed because you depend on them to ensure that the building is structurally sound and in good condition.

With maisonettes it is common for people to own both the leasehold and a share of the freehold. This is so that they own the land and building, yet also have some control over the other residents.

I don't think the question should be leasehold vs freehold. It should be about the type of property.

Houses - usually best to have freehold
Flats - usually best to have leasehold
Maisonettes - usually best to have leasehold and share of freehold

The type of property that is best to purchase as an investment depends on area.

The rights of leaseholders are so strong that there is not really that much of a difference in terms of 'ownership' anyway. It is more about responsibility to others and the management of shared expenses.

Remember that 'freehold' is just a perpetual lease from the crown anyway. The only difference in real life is that 'leasehold' has a third party involved and an expiry and hence a requirement to renew at some point.