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Buying Property: Freehold Creating Leasehold

April 01, 2012 | Comments: 0 | Views: 148

Many new definitions and schemes are used to describe the next process, which is in fact quite simple. I had been doing this for many years before it was packaged and marketed in a way to appeal to consumers rather than developers.

If you are buying a property that can be divided into separate dwellings, then those dwellings can be sold off individually for more than the original purchase price, with a resulting profit to you. This is what many developers do.

Even if you do not sell them on, you create a property more valuable as separate units. You may be able to borrow on them as lenders see individual divisible demise as more valuable than the whole. In some cases the amount raised on the re-mortgaged individual premises can be sufficient to discharge the initial investment and perhaps leave a small profit. Even if re-mortgaging in this way does not raise a profit, it may enable a developer to the costs of develop- ment.

It is has historically been more beneficial to purchase a larger property and create separate demise rather than purchase those demise individually. However, buying property individually may save on stamp duty as long as the transactions are seen as separate (many are not).

Again speak to your lawyer about this. There are pros and cons to both but if you want to make a profit from your property, the effort and risk may be worth it.


Let's say there is a Victorian house on three floors that can be converted into three flats. Suppose you pay£500,000.00 for that freehold property and the flats sold for £225,000.00, £250,000.00 and £275,000.00 each. The resale value then becomes £750,000.00.

There is a clear margin of profit which, even after tax has been deducted, represents a considerable sum.

Bear in mind the following benefits:

1. Buying in bulk has benefits - one transaction and that's it!2. The cost of each property is relatively low compared to its true value as an individual demise.3. The profit could be very high on the right property.4. You have the opportunity to create the property you want at the price that works for you.5. Re-mortgaging will create additional funds that can be reinvested.6. You create a flexible investment opportunity for re-mortgaging, for keeping or for selling.7. The property may end up being 'free' if the financing is handled correctly.

The downside:

1. The transaction will attract stamp duty at the higher rate.2. Additional stamp duty may have to be paid on the creation of the new lease. 3. Cost of commercial loans.4. There is a large element of risk in speculative property investments.5. Planning issues, restrictive covenants, environmental or conservation area issues must be considered.6. The cost of redevelopment may be high.7. There will be a delay in releasing the money.8. Electricity and gas meters (if applicable) must be installed for all the demises9. Surveyor's plans and architect's drawings are needed.9. Lawyer's fees for drawing up the leases and creating separate demise with rights of way over the other properties.10. Tremendous amount of time, effort and planning involved.

To know more tips on How to purchase a rental properties and what are the available properties to purchase visit

Source: EzineArticles
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Freehold Creating Leasehold

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