I was talking to an investor today who swears by freehold property and says he would never touch a leasehold with a barge pole. At first, it seems like an obvious preference as you completely own a freehold property, you control the management of the property and aren’t subject to service charges and ground rent – but is freehold always the way to go?
When considering this for your next buy-to-let investment, research what Medway tenants want when looking for a Medway property! As the tenant will be your only source of income it is vital that you establish their wants and needs early. If you can satisfy the demand created by them, then your investment will be without void periods and with longer-staying tenants.
One plus for leasehold properties is that they may be cheaper to buy than freehold. Leasehold properties in Medway are easily lettable and preferred by some tenants as there normally isn’t gardening to do and other maintenance work that may be required in a freehold property.
Leasehold flats are already insured by service charges, which means that you are not at financial risk if the roof collapses or another calamity strikes. The amount of service charges should reasonably reflect the work done by the management company. However, I regularly hear horror stories where management companies have charged extortionate amounts compared to what the actual work costs. Furthermore, many freeholders go with costly insurance which pays them the most commission.
You should check with the freeholder how much they charge for certain consents such as alterations or to transfer and register mortgages. It would be wise to Google the management company listed as the freeholder to check if there any common complaints regarding substandard work or extortionate charges.
Medway leasehold flats can suffer from poor capital growth if charges are uncapped and then spiral out of control. Therefore always check the lease is not governed by draconian clauses. Another consideration, in order to preserve capital values, is that the lease will need renewal from time to time; this brings additional costs to your investment, so factor that in to your rental yield calculations.
What about the statistics? Well in the past ten years the average leasehold property in Medway has risen from £117,073 to £151,911; that’s a rise of 29.8%. On the other hand, Medway freehold property has risen from £208,550 to £272,005, representing an increase of 30.4%. So the two equate to a similar figure, but remember that returns on the leasehold would have been reduced by service charges, ground rent and lease renewals.
To conclude: always do your research before buying a Medway property and find out what your Medway tenants want. One handy source of information is my Medway property blog, which brings you all the news on Medway property. Or, like many Medway landlords doing research, you can talk to me directly on 07944 726676.
Whether you are a seasoned investor or just getting into buy-to-let investment, feel free to get in touch. Many landlords email me a link of a property they are wishing to buy and I give them honest advice. It doesn’t matter if you are with another agent, I will tell you what you need (but might not necessarily always want!) to hear. My email is email@example.com.
Follow me on LinkedIn here