Leasehold Property

[Nomad]

Hi all,

Hope someone can shed some light on the legalities and implications of buying leasehold properties (just a brief overview would be great at this stage).
I have just seen a property advertised offering a great yield but it is on leasehold land with Licence to Occupy expiring in 2015.
I have been told that this land will be used for other purposes once the lease has expired (although I have not yet had this confirmed).
Basically the main concerns for me are:

• What happens with the building when lease expires if the lease cannot be renewed?
• What questions should I be asking RE Agent / Lawyer re the lease?
• What restrictions are likely to be set re any alteration / additions?

Any help or experiences with lease hold would be greatly received.

[spurner]

Basically you are purchasing the right to be able to rent the land from the owner for a set period of time, similar to key money paid to buy a lease in a desireable retail location for example. There is often no automatic right of renewal at the expiration of the lease, so in 2015 you might be left with nothing except for a bill to remove the dwelling from the owners property. Make any yeild and financial calculations based upon the property being worth $0 in 2015. You will need to check the lease about what happens with the building at the end of the lease but it may be your responsibility to dispose of it and make the grounds good. I'd suggest spending good money for alterations and additions on a dwelling you might have to remove in 9 years time mightn't be the best use of your money. Check with your bank re financing too as there's a good chance they won't lend you any money against the property. I think the only way to make money on this place is if you get it very cheap, and the rental income will easily cover the lease payments, and by 2015 the rent will easily have paid you back your initial investment, as well as paying repairs and maintenance, paying to potentially remove the dwelling, and still paying you a handsome amount for your risk and time.

Short story: Not a good idea, find an investment property with a land component involved. Land is key.

P.S. I have owned several leasehold properties, all with rights of renewal. Capital gains were nil to negligible. I have since either sold them or purchased the land from the owner.

Hi all,

Hope someone can shed some light on the legalities and implications of buying leasehold properties (just a brief overview would be great at this stage).
I have just seen a property advertised offering a great yield but it is on leasehold land with Licence to Occupy expiring in 2015.
I have been told that this land will be used for other purposes once the lease has expired (although I have not yet had this confirmed).
Basically the main concerns for me are:

• What happens with the building when lease expires if the lease cannot be renewed?
• What questions should I be asking RE Agent / Lawyer re the lease?
• What restrictions are likely to be set re any alteration / additions?

Any help or experiences with lease hold would be greatly received.

[duwi]

How about this -

Just saw an ad:

Leasehold student apt. (> 50sqm)
Lease for 100 years (95 years to go)

Rent: 1149.5 NET
(all outgoing + maintenance paid by the uni)
Don't need pay the land for the next 15 years. After 15 years, pay 6% of the land value.
Asking Price: 170,000.00
Just rang a bank, its ok to finance this kind of property with 5% deposit.

[roseneath_rat]

Nomad, is the land owner Transit by any chance? If it is, expect that the property is to be bulldozed for a nice shiny new road.

[Nomad]

Nomad, is the land owner Transit by any chance? If it is, expect that the property is to be bulldozed for a nice shiny new road.

Hi Rat,

The land is in a holiday park in Queenstown and word is that it is earmarked for yet further retail development once the lease has expired. Haven't made enquiries re the rental amount but would expect it to be right up there so that takes the gloss off it.
The way Qtown is going I would expect for the development to go ahead, so after reading Spurners' reply (thanks for that Spurner - very helpful) I have decided not to go there.
Need to be in the property game a while longer before I get into leasehold properties I think.

[captaincrab]

You will only get a Capital Gain out of Leasehold if the property has special and unique features, like being waterfront, otherwise always better to buy freehold.
"Buy land, cause they aint making any more" Mark Twain

[essence]

I Disagree captaincrab

Whilst Mark Twain's comment may have been true in his day, it is quite untrue today.

Countries like Singapore and the U.A.E. are all creating more land. Yes, it is costing them billions (of oil money) but they are creating it.

[martyparty]

I hear a lot of people knocking leasehold, but you really need to do the numbers... and read the lease. There are some great tax and other benefits locked in there, depending on the form of the lease.

Lesson: When buying leasehold, work out how much it costs to make it work for YOU, then buy at that price (or better).