Freehold houses are better investments aren't they? Not always…
A landlord came in to see me the other day to talk property. Naturally I obliged. They had always invested in freehold houses. “I don’t like leasehold properties.” He said. “The freeholder is always asking for service charges and ground rents.” Naturally I agreed, as being a leaseholder does mean that you bow to a superior landlord ultimately. However, emotions aside, I urged him to look at the pound notes rather than the feelings. I was confident his feelings would turn gleeful when I drew his attention to the return as opposed to focusing on what he was paying in costs.
A leasehold is not a bad thing. Naturally some freeholders will be better than others, but to some extent it allows for more hands-off investing. A management company will be looking after the block, so all you would need to worry about is the confines of what’s behind the front door. Easy. And more lucrative it would seem in most cases.
We compared two properties up for sale at the moment:
Rathmell Drive – 2bed flat near Clapham South Station – Asking price of £339,950 – est rent 350pw = 5.4% gross yield.
Estoria Close – 2bed house near Brixton and Tulse Hill Stations – Asking price of £475,000 – est rent 400pw – 4.4% yield
Naturally the gross rent in the latter property will be closer to the net rent as there will be less costs in the order of service charges, ground rents, sinking funds and so forth, but to put this into perspective… for the latter to yield the same it would need to achieve £493pw in rent. In conclusion we agreed that no matter how frustrating freeholders and management companies can be they don’t cost anywhere near £93pw!