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  • Auction Tribe

    Which one is better deal long lease/low price

    Hi All,

    I am new in property investment and want to understand bit more about the auction.

    If there are 3 flats of 1 bedroom with almost same rent potential.

    1. Price £ 45k least left 15 years.

    2. Price £ 60k lease left 75 years.

    3. Price £ 85k lease left 165 years.

    Which one is best deal and what else should I look, please?

    Thanks and regards,

    Sanjay

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    Google COST OF LEASE EXTENSION

    Reselling with lease below 80 yrs is tricky as few lenders will offer

    The £45k flat will have massive marriage value involved in cost of lease extension - eg TENS OF THOUSANDS

    If you fail to extend lease you forfeit the property in 15 yrs - so you are just renting it for £3000 pa

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    You will also struggle to get a loan to buy the 2 cheaper flats - so unless you have cash forget it

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    Hi Landy,

    Thanks for your reply.

    My plan is to buy in cash and than get the mortgage from any bank.

    I am thinking to get back most of my investment. Minimum money left in.

    Regards,

    Sanjay

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    You would need to fund lease extension on 2 cheaper flats - before getting a mortgage.

    You cannot PERSONALLY apply for lease extension until after 2 yrs of ownership

    Seller COULD THOUGH APPLY FOR EXTENSION BEFORE COMPLETION - TO EXPEDITE PROCESS

    Nutshell is dearest flat is cheapest

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    Hi Landy,

    Thank you so much for information, it is really helpful.

    Regards,

    Sanjay

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    Hi - i'm know full expert on lease extensions but know some things which i think can help

    1) There is no real costs other than legals and admin charges to extend a lease that has over 80yrs remaining. So a flat with 80yrs on the lease has almost identicle value as one with 999yrs left.

    2) if you've owned the property for over two yrs you have an automatic legal right to extend the lease (assuming its a long resi lease)

    3) if you buy from someone who has owned the property for over 2yrs then can pass you the legal right to extend the lease straight away

    4) The government have produced tables as to how much it costs to extend a lease based on the value of the property and the length of the lease (this can be different with houses and flats - houses generally cheaper but don't absolutely quote me on that).

    5) you actually can get mortgages on properties with short leases but it does reduce the amount of lenders the shorter the lease (speak to a mortgage broker) but typically if the lease has more than 25-30yrs left by the end of the mortgage term, the bank will lend, they might restrict LTV a little more.

    6) I'm extending a flat at the moment that has a 48yr lease - we paid 182.5k for it and it should cost circa 40k ish to extend - we've offered freeholder 32.5k as first offer.

    7) its an exponetial cost so every yr the lease shortens below 80yrs the cost increases more every year than the yr before.

    8) a lease of approx 68yrs is approx 8% of current value to extend. 48yrs is approx 22%

    It can take a little while to negotiate with a freeholder as they obviously want as much as poss and you want to pay as little as poss. I'm your can't reach an agreement, you have to pay solicitor to argue your case in court - if you win they will pay your legals, if you lose you pay their, if its somewhere in the middle you both pay your own legals - as the cost is pretty fixed by the government tables.

    I find them often that extra little bit of profit to help with, refurb, layout change, planning gain, cheap purchase to make a BTS transaction profitable enough to do.

    cost and hassle but opportunity. another string to the BTS bow so to speak.


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    regards Andrew Peers - property investor / sourcer - 07912674181

    a.peers@seamlessproperty.co.uk

    Property Redress Scheme Number 011436     NLA member 174404


    Price £ 85k lease left 165 years. if you can afford it this could be the best option. you probably sell it back a lot more than what you paid after 15 years and all these rent incomes for free Wink

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    there are some good calculators available online, though a proper surveyor valuation for extension will be more accurate.

    In your example, Option 2 (75 years at 60k, and extend lease) is BY FAR the best option. Here's why:

    Assuming you are looking at around 2k in legal and surveyor fees (including the freeholder's legal fees) for extending each of the shorter 2, using one of those calculators, this is how the options stack up:

    1) Flat with 15y lease, bought for £45k:  extension cost can be up to 53k, so total cost = £101350 (45+SDLT + 53 + legal fees) + normal conveyancing fees

    2) Flat with 75y lease, bought for £60k):   extension cost should be around £4500, so total cost = £68300 (60k+SDLT + 4.5 + legal fees) + normal conveyancing fees

    3) Flat with 165y lease, bought for £85k: cost £85k + stamp duty: total cost £87550 (85000 + SDLT) + normal conveyancing fees

    Those figures assume £0 (or peppercorn) ground rent.  Increasing it to a more "average" £200 per year only makes about £1000-1500 difference (upwards) to the prices of each of (1) and (2).

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