Working out the value of a ground rent investment is not complicated as the value is simply a multiplication of the annual ground rent. Generally speaking the value of a ground rent really depends on the way a lease is drawn up.
There can be a big difference in what ground rents are worth with some properties being worth 20 times their annual income and others being worth 25 times their annual income. Properties with short leases can be worth even more than that and these must be worked out with a different formula.
If the freehold of a building contains leases that have an unexpired term of under 80 years the value of that building will be considerably more than a building with 99 year leases or 125 leases. Because the landlord will be able to charge the leaseholder for a lease extension the value the building will quite significant particularly if the property is in London.
There is a direct correlation between the values of the flats and the premium payable for the extension and this is taken into consideration when the valuation is considered.
The formula that is used to calculate the premium payable by the leaseholder is complex and you need to look around the internet for a lease extension calculator to help you determine what an extension should cost. The online calculators are not completely accurate but they will at least give you a rough idea what the extension will cost.
No ground rent portfolio is too big or too small. We are able to tell you over the phone how much your property is worth. We do not need to visit the properties as we are able to give you a free desktop valuation. Generally the valuations are worked out with a multiplication of the annual ground rent income. In some instances we may need to see a copy of a lease but this is not always necessary.
Generally speaking ground rent values in London and the south-ease of England will be higher than the rest of the UK. This is because property prices are higher and ground rent investors are chasing too few properties which is pushing up prices. Please let us know if we can help with our free valuation service.
The impact of low interest rates has had a massive impact on the values of ground rents of all descriptions. It is probably fair to say that ground rent valuations have shot up by well over 50% over the last 5 years as investors look to invest in the ground rent market. They are no longer the preserve of specialist investors as more and more investors look to get involved in this niche market. The returns that can be generated has diminished as prices have increase and yields drop.
The values of ground rents will depend upon the prevailing ground rent and the capacity for those ground rents to increase over time. A building whose ground rents increase regularly will be more valuable that a ground rent that increase every 25 years. We are talking about long leasehold investments with leases of in excess of 100 years. If a landlord is able to manage and insure the block they will also pay a premium for this as they will be able to charge fees for carrying out services such as property management.
The popularity in ground rents has also increased because they are reasonably low risk and can be purchased without the need to raise finance . This removes the need to rely on banks for funding which has been a major issue in recent years. It is possible to borrow money against ground rents but you really need a substantial portfolio providing a good income stream to make them interesting to any financial institution.
Owning a few ground rents reversions can be fairly unpredictable as it is not certain how often yo will be able to charge leaseholders for lease extensions. However a large ground rent portfolio will see more regular income from lease extensions.