This is a collaborative post
If you want to buy a property, then it is vital to know some of the basics of investing in real estate.
For many beginners, the question ‘what does tenure mean’ often comes up. Tenure refers to the different ways that you can own a property.
When buying a property, there are two main types of tenure – freehold and leasehold. Freehold tenure is where the property owner owns the land the property is built on.
With leasehold tenure, the property owner does not own the land it is built on and rents the property for a certain number of years from the freeholder, which can last up to decades.
What to consider before buying a leasehold property
Before buying a leasehold property, it is vital to consider the amount of time that is left before the lease runs out.
If the lease is for 100 years, you have the right to live in the property for 100 years.
If you purchase a leasehold from another leaseholder, you are purchasing the right to live in the property for the remaining years of the lease.
Avoid leases that have less than 70 years remaining, as you may have problems getting a mortgage approved.
Additionally, having a short amount of time on a lease may make it difficult to sell the property in the future.
Check to see if there will be service charges to pay to the landlord to cover maintenance and running costs of the building.
Factor these into your calculations when working out what value property you can afford to buy.
Here are some pros and cons of buying a leasehold property to further help you with your decision making.
Pros
Leasehold properties:
- Are typically less expensive than freehold properties.
- Offer a more affordable way to get on the property ladder.
- Can cost less than renting in the long run.
- Require less owner responsibility for repairs and maintenance
Cons
- A short lease may prevent the resale of the property or your ability to get a mortgage.
- When the lease expires, you will have to approach the landlord for a renewal.
- Your lease is subject to conditions that may limit the way you can use the property and limit what you can do to the property in terms of home improvements.
- You may have to pay service fees which could start out inexpensive but can increase substantially over time.
Carry out your research carefully and ensure you are fully informed about the particular lease of the property you are considering buying.