Short Lease Flats

towerlondon

Hi

This forum is a font of knowledge and I was wondering if anyone has any guidance on very short lease flats in Central London (10-30 years remaining) as an alternative to long term renting. I understand the value of the flats would depreciate to 0 as it gets close to lease expiry and would be okay with that if the initial price is right.

Key questions are:

Finding them - Is there a quicker way to finding them than trawling through rightmove/zoopla for potential price anomalies? Are there specialist estate agents who I should contact?

Valuing them - My valuation process would be to take the lower of the market rent and what I would consider renting it for, take off annual service charge and ground rent, multiply that by the number of years left, then take off 20%.Does that sound about right, what might I be missing? I am not including any value for possible lease extension, I am looking for that as a free longshot bet.

Price negotiation - How difficult are these to sell? I imagine there is a low interest in them, and given the difficulties in valuing them and not being suitable for mortgages that big discounts, 10-25%, to asking price will be common, is this overly optimistic?

Thanks in advance for any help!

davidmcn

towerlondon wrote: »

Does that sound about right, what might I be missing?

• Costs involved in buying (and selling) - solicitors, SDLT, estate agents etc
• Risk of fluctuations in property values (can work both ways of course)
• Risk of additional common charges beyond whatever service charges you were anticipating
• Other maintenance costs which a landlord would be liable for if you were renting

Littleonesunshine

Good idea, I just don’t think they exist.

towerlondon

They are rare on Zoopla/Rightmove but do exist, I cant post links but an example would be on rightmove 58268146 in SW3.

towerlondon

davidmcn wrote: »

• Costs involved in buying (and selling) - solicitors, SDLT, estate agents etc

Thanks, on SDLT I assume it is SDLT on the market value with short lease rather than market value if it had a normal lease?

davidmcn

towerlondon wrote: »

Thanks, on SDLT I assume it is SDLT on the market value with short lease rather than market value if it had a normal lease?

Yes - or rather, on whatever you're paying, whether or not that's the market value.

Linky here for that flat:
https://www.rightmove.co.uk/property-for-sale/property-58268146.html

Tom99

towerlondon wrote: »

Hi

This forum is a font of knowledge and I was wondering if anyone has any guidance on very short lease flats in Central London (10-30 years remaining) as an alternative to long term renting. I understand the value of the flats would depreciate to 0 as it gets close to lease expiry and would be okay with that if the initial price is right.

Key questions are:

Finding them - Is there a quicker way to finding them than trawling through rightmove/zoopla for potential price anomalies? Are there specialist estate agents who I should contact?

Valuing them - My valuation process would be to take the lower of the market rent and what I would consider renting it for, take off annual service charge and ground rent, multiply that by the number of years left, then take off 20%.Does that sound about right, what might I be missing? I am not including any value for possible lease extension, I am looking for that as a free longshot bet.

Price negotiation - How difficult are these to sell? I imagine there is a low interest in them, and given the difficulties in valuing them and not being suitable for mortgages that big discounts, 10-25%, to asking price will be common, is this overly optimistic?

Thanks in advance for any help!

Don't forget to allow for voids in the letter period, agent fees for re-letting/managing.
Why not use a discounted cash flow approach rather that just take 20% of the total net rents?
Knocking 20% of 20yrs worth of rent is a discount rate of 2.5% which seems way below the level of return you would look for with this kind of investment.

towerlondon

Tom99 wrote: »

Don't forget to allow for voids in the letter period, agent fees for re-letting/managing.
Why not use a discounted cash flow approach rather that just take 20% of the total net rents?
Knocking 20% of 20yrs worth of rent is a discount rate of 2.5% which seems way below the level of return you would look for with this kind of investment.

Thanks, it would be to live in rather than rent out, but your post reminds me to also take account of opportunity cost of not having the funds invested elsewhere.

sal_III

What is the chance of the Freeholder slapping you with a massive section 20 bill soon before your lease is due to expire?

towerlondon

sal_III wrote: »

What is the chance of the Freeholder slapping you with a massive section 20 bill soon before your lease is due to expire?

Thanks, knew this is a good place for advice, again not something I had considered and given short lease flats will typically be in blocks approaching a hundred years old could be a big downside.

Is there much I could do to research the building/freeholder and see if this is likely? A reasonable sinking fund and the building looking in good health would presumably provide some mitigation?