Buying a buy to let with 63 years left on the lease. Crazy or good idea?

[fabulousathome]

DH and I are currently looking for a buy-to-let property with the aim of keeping it for at least ten years. The aim is to make our money in the bank give us more interest as well giving us the potential for capital growth in the property (i.e. the price goes up) if we make it nicer inside and the area goes "up".

We are very fortunate not to need a mortgage for this and are aiming to spend around £170K on a two double bedroom property near transport in East London. We can only buy one flat. This seems to be doable (price wise) but only just.

At the weekend we saw a 2 bed flat in a block of 6 in an area we hadn't really been looking in. It's in a really nice area close to us but the flat has only 63 years left on the lease (therefore unmortgageable as it needs to be 70+). The price is £160K because of this. I reckon it would be quite a bit more (hard to say but at least £25K) as the area is lovely. e.g. Waitrose is 0.2 miles away as is a Central Line tube station and the classiest of shops, all within walking distance. I'd live there myself if I was single, unlike the other places we have seen so far when flat hunting.

The flat currently has a tennant paying £1000 per month. Ground rent + service charges equal just over £1k per year.

The estate agent suggested that we buy it (cash), keep it for two years (rented out) and then we have the legal right to have the lease extended by 90 years. It would then be worth quite a bit more. He thought that the price of the extension might be around £30,000. With two years rent in hand we could easily afford this. At a price of £190K it's a bit overpriced.

Any opinions on this? Are we buying a heap of trouble and should stick to going for a long lease flat or is this a good idea?

I forgot to say that I put into a price of lease extension website all the details and it gave the price of getting a new lease at £18,000. I understand that the freeholder can dictate the price or you can take him/her to court if you disagree but wouldn't really want to get involved in court proceedings.

By the way, as I am sure you can guess DH and I have never done anything like this before!

Looked into this recently at a property with 75 years on lease. Advice from solicitor and estate agent was not to even go there. They said the property price should be significantly reduced or the vendor should extend himself. We decided against it.

More info here...
www.moneysavingexpert.com/mortgages/extend-your-lease

I've bought short-lease flats but only at such a price that it makes it worthwhile. As you know, the flat is unmortgageable which, imo, means you should knock at least a third off the price off its mortgageable equivalent. In both my cases, it was easy to extend the lease (in one instance, I did it between exchange and completion) but you could have a very difficult or a very flaky freeholder which would make it a lot of (expensive) hassle.

I've just read that website recommended by doodle and it gives me a lot to think about. It's a minefield with too many unknows isn't it?

If I've understood it correctly, why wouldn't the vendor arrange for the lease to be extended thus giving them a more valuable asset before they sell? Perhaps the freeholder is difficult to deal with or the price is quoted is too high for the vendor to pay?

I'm thinking perhaps this is a "don't touch it with a barge pole" flat.

Ask for it to be extended pre completion and split the cost. If he has had the flat 2yrs plus the freeholder can't say no

these people can help you

That's just it though, fabulous. Why wouldn't they extend the lease prior to selling? Who knows. Ostrich head and sand spring to mind.

The lease may also prohibit renting out without freeholder's permission, for which they can charge you.

You're into 'marriage value' territory which is very difficult to price. I work with leases and leasehold law and to be frank, most estate agents don't know their arse from their elbows when it comes to this sort of thing, so I REALLY wouldn't listen to the EA's opinion. It's a very very risky strategy to take and you may be left with a depreciating asset at the end of it.

OK. I'm going to ring the EA tomorrow and say we are not interested unless it has a much longer lease. I'm not going to buy myself a heap of trouble!

Thank you all for your good advice!

We were also in the same boat as you OP. Made a below asking price offer on the basis we would wait whilst the vendor extended the lease.
After waiting four months and still no news we pulled out ant bought elsewhere.
That flat is still on the market now 2.5yrs later reduced by 75k.
My advice is walk away before spending any money!

We bought a 2 bedroom flat with a 72 year lease 4 years ago. 2 years ago we extended the lease to 99 years (we couldn't afford the standard 90 year extension). Cost of flat + cost of lease extension was more expensive than buying a freehold house on the same street so a very expensive mistake

I phoned the EA and said that it would either have to be a lot cheaper or we would prefer the vendor to extend the lease. I'm pretty sure that they've owned it since 2007 (I found a sold price on Land Registry from that date).

No one has come back to me. Probably a lucky escape!