Ground rents as investments?

Barry_Bear

Anyone got any knowledge of ground rents as investments? Residential v commercial? Long-term returns, advantages, pitfalls, things to watch out for etc.?

EdGasketTheSecond

Can you give an example of what you mean? Don't you need to own land or property to get ground rent?

george4064

EdGasketTheSecond said:

Can you give an example of what you mean? Don't you need to own land or property to get ground rent?

It’s a pretty well known alternative investment. It’s effectively buying freehold(s) and earning income from the ground rent the leaseholders pay to the freeholder(s), but here it will be in the form of an investment company who own the freeholds for various pieces of land and will distribute income to their shareholders.

Ground Rents Income Fund Plc; http://www.groundrentsincomefund.com/

Also I’m sure there are some property investment trusts that source part of their income from ground rent investments,

Barry_Bear

george4064 said:

EdGasketTheSecond said:

Can you give an example of what you mean? Don't you need to own land or property to get ground rent?

It’s a pretty well known alternative investment. It’s effectively buying freehold(s) and earning income from the ground rent the leaseholders pay to the freeholder(s), but here it will be in the form of an investment company who own the freeholds for various pieces of land and will distribute income to their shareholders.

Ground Rents Income Fund Plc; http://www.groundrentsincomefund.com/

Also I’m sure there are some property investment trusts that source part of their income from ground rent investments,

 
I will look at the fund option although I am actually more interested in buying freeholds directly.
Anyone here done this or have any views on returns, problems or things to watch out for?

masonic

The main thing to watch out for is Government regulation. We've already seen action taken in the case of new build properties. Also, if you want to buy freeholds directly, what obligations will have to the lessee?

Thrugelmir

Grainger PLC is one quoted vehicle to access this market. 

chucknorris

masonic said:

The main thing to watch out for is Government regulation. We've already seen action taken in the case of new build properties. Also, if you want to buy freeholds directly, what obligations will have to the lessee?

I looked at ground rents about 10 years ago, two things put me off, as you say changes in regulations is a risk, and the other one was that I managed to find a forum discussing ground rents and they were saying on there, that many leaseholders don't pay them on time. The consensus was that you'll eventually get what you are owed, but sometimes it takes time, and that can be very frustrating. Although they did also say that you can use a management company to handle the collections for you. But I decided that it wasn't a suitable investment for me.

Barry_Bear

ChuckNorris thanks for that feedback. The returns are low but stable, but administration, legal obligations, and invoice collection looks to be an issue.

DiggerUK

Barry_Bear said:

ChuckNorris thanks for that feedback. The returns are low but stable, but administration, legal obligations, and invoice collection looks to be an issue.

About the same time as CN, it seems I was doing similar. 

Although the returns  are known well into the future, collection can often be frustrated until the property is sold. If tenants fail to pay the mortgage they can be evicted. It is not normal for tenants to be similarly treated if not paying ground rent.

The main attraction of owning the freeholds  were the payments that could be extracted from tenants to buy their freehold. Even then, some mortgage providers would stipulate a minimum amount of time left on leases before advancing mortgages, now I imagine it will be worse..._

chucknorris

One thing that no one has mentioned (which was what got me interested in the first place) was that as you already own the land, if you target buying a large building with development potential, you can build additional flat(s) on the top floor (or elsewhere) and make a killing. I had the idea of buying such a large block, and building a large penthouse with a decent sized terrace to retire into, but I couldn't convince my wife, and then I lost interest, due to the other issues.