What Are Freehold Ground Rents
What is a freehold ground rent and how can they be purchased for investment? When a block of flats are sold on long leases each flat will pay an annual ground rent of say £250 per annum. If you have ten flats this equates to an annual ground rent of £2,500 which is collected by the freeholder or an agent acting on his behalf. The freeholder will have inherited this ground rent income by default and can either retain the freehold or sell it on the open market. Generally speaking these types of investments will sell for between 13-20 times the total annual ground rent that is collected.
Many investors are now turning to these investments as a way of providing a steady income over the long term. As you are aware a lessee must pay their ground rent annually or they can be penalised by the freeholder. You don’t have to be a property professional to get involved in ground rents as you can employ the services of a managing agent that will look after the day to day management of the block at the expense of the lessees. As freeholder you should have a sinking fund in place that will pay for any works that become necessary. This fund is paid into by the lessees and is used for building works and insurance of the building. Most landlords purchase these buildings with a view to just collecting the annual ground rent and leaving the day to day management with a management specialist. Generally these ground rents are paying between 5% – 8% per annum. Of course you could you could just leave your cash in the bank but with inflation eating away your hard earned money, people are waking up to these investments.