Jump to content
House Price Crash Forum
Sign in to follow this  
numpty

Property Investment - Seems To Good To Be True

Recommended Posts

A friend of mine has a huge portfolio of ground rents secured on blocks of flats in South London

He has always advised caution on BTL and as far as I know never dabbled, just kept on buying these freehold ground rents year after year.

He gets the following streams of income:- Ground rent, Insurance commission, managment charges and various fees plus he also does well when lessees wish to extend the lease.

He recently bought a portfolio of ground rents in the North where the income rises every 7 years by any increase only in the RPI. He does not have to do anything other than collect that rent and he paid for £90,000 worth of ground rent income £1.2 million. He says it was a bargin compared to the yield on Indexed linked gilts. What was interesting is that he said that the capital will in time also rise in line with inflation as the rent and the value are directly linked

He is very easy going and does not have running battles with lessees but takes complete charge of everything

But the thing that really made me think it was good was that the income is absolutly secure the ground rent and other income takes first charge over everything and has no fear at all about the recession the only stream of income he will see fall is the amounts paid for a lease extentsion.

He has no borrowings apart from on the big portfolio where he borrowed £0.5 million

What is the risk of this type of investment

Share this post


Link to post
Share on other sites
A friend of mine has a huge portfolio of ground rents secured on blocks of flats in South London

He has always advised caution on BTL and as far as I know never dabbled, just kept on buying these freehold ground rents year after year.

He gets the following streams of income:- Ground rent, Insurance commission, managment charges and various fees plus he also does well when lessees wish to extend the lease.

He recently bought a portfolio of ground rents in the North where the income rises every 7 years by any increase only in the RPI. He does not have to do anything other than collect that rent and he paid for £90,000 worth of ground rent income £1.2 million. He says it was a bargin compared to the yield on Indexed linked gilts. What was interesting is that he said that the capital will in time also rise in line with inflation as the rent and the value are directly linked

He is very easy going and does not have running battles with lessees but takes complete charge of everything

But the thing that really made me think it was good was that the income is absolutly secure the ground rent and other income takes first charge over everything and has no fear at all about the recession the only stream of income he will see fall is the amounts paid for a lease extentsion.

He has no borrowings apart from on the big portfolio where he borrowed £0.5 million

What is the risk of this type of investment

As far as I know (and I'm no expert) the ground rent is his, free-and-clear, but the various charges are supposed to be for a specific purpose. So the management charges should be spent on maintaining communal areas and the fabric of the buildings (what if the roof needs to be replaced?) Having said that, I understand that it's not uncommon for freeholders to take the pi$$ and trouser money that is supposed to be earmarked for the building.

The main risk IMO is a change in the law, eg a few years back when leasholders were given the right to buy their freehold under certain circumstances -- presumably the value of freeholds must have been impacted. Similarly if a future law compels freeholders to actually fulfil their obligations and deliver the services they're paid for, this will affect the yield and thus the value of the asset.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 395 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.