So I know this is a curve ball and according to my new “easy” buy to let list I shouldn’t have been looking in Bournemouth.
The guide for the flat was £170k which sounded well below market value. I could see the flat was a repossession and the previous owner had paid £232k for it in May 2006.
My initial thoughts, when looking at a too-cheap leasehold property is that it’s likely the lease needs extending. This usually happens when a flat has less than 80 years left on the lease. 80 years is the magic number when it comes to leasehold properties as it is at this point when you have to pay a ‘marriage value’, or premium to the Freeholder to extend the lease. The scary thing is – once you reach this point – not only does the premium increase exponentially with every decreasing year of your lease, in addition the value of your leasehold flat also decreases. This is a double-whammy – and the only way out is to find the money to increase the length of your lease – or buy the Freehold.
Now all of this may sound very scary – but actually it’s just a numbers game. When buying a short leasehold property you just have to factor this into the buying price of the property.
Anyway, I download the lease from the auction house website and see that it has a 999 year lease with a peppercorn ground rent. Crikey, that’s a bonus, I think to myself.
Then I check the Energy Performance Certificate (EPC) and my jaw hits the floor. The EPC says this two bedroom flat is 99 sqm (1065 sq ft) which is larger than most three bed semi-detached houses!
WOWZERS! What a gem. I am positively salivating and about to call the agent to book a viewing.
But wait I say to myself. Hold on.
You know this is a popular and affluent area, and this looks to be a fab flat – I know it’s a repossession – but WHY is this property being sold at auction?
And so I ponder on that some more.
Why is it this flat hasn’t been sold on the open market via an estate agent – especially in the current *hot* property market?
Something is amiss here.
So I turn property detective.
I decide to dig deeper and download all the service charge information relating to the flat.
And that’s when I really got a shock, because the service charge contributions for this flat were a whopping £3906.97 per year! That is equivalent to £325 per month. And that’s before you’ve even paid your mortgage, council tax or any other utility bills.
To which I thought – surely, that can’t be right. How on earth can a block with just 13 flats cost SO MUCH to run each year?
And so I dug deeper into the detail to try and get to the bottom of these extortionate service charges.
I start reading the minutes of the management meetings. OMG it was like some sort of nightmare soap opera property plot line. You had arguments upon arguments; fall outs and legal cases with the management company – six-figure sum roof repair bills, spiralling legal costs, on-going wranglings, some weird funny business over flats not paying equal shares, leases being challenged, director’s resigning in protest and allegations of blackmail.
And it doesn’t end there.
There are major works planned and Section 20’s have been served…although no budgets are in yet!
Woah! I said to myself, if ever I am in need of chucking my money down the drain and pickling my brain – this would be just the flat to do it on!