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Title Splitting and getting all my money out of the deal


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I'm a newbie to the forum and started my property investment journey last year.  I live in London and would have liked to invest close to home but put off by prices. So the first property I did was a 6 bed HMO in Bolton. Had a few problems but good learning curve and now fully let and managed by agents and making about £900 profit a month.  

 

I have just had an offer accepted on my second property also in the North West. Its a former pub which has been converted into 4 flats, 3 x 2 bed and 1 x 1 bed. It also has 4 garages with it. The flats are all let out and the annual rent is £19,500. Purchase price is £190,000. Stamp duty and legal fees survey etc about £10,000. My plan is to buy with cash and then split the freehold title into 4 leasehold flats. From my research and speaking to local agents I believe the  2 beds should be valued around £70k and the 1 bed around £60k giving a total value of £270k. If I then get 4 mortgages on the flats at 75% LTV I should be able to extract £202,500 from the deal and leave myself with nothing left in. I appreciate I have to leave the cash in for 6 months from the date I split the titles to when I can get finance. The legal fees for splitting the title have been quoted at £1,500 and there will be 4 arrangement fees for mortgages. 

 

i will be left with the Freehold and possibly 4 garages to either develop or sell if I do not include them with the Leaseholds. I don't know what a garage is worth but they must be £5-£10k each at a guess.

 

Seems like a great deal to me but am I missing anything?

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This depends on the location and if the garage is just a parking space or if could be rented out. I live in Manchester and parking space is closer to 10k but can be picked up cheaper. In prime Manchester location you could pay a lot more. You seem to be doing well but if I can help bearing in mind I'm local to your investments then let me know.

dramjedkhan.

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Hi Freeman. If not already done so, check out the quirks of changing the named ownership when splitting the title. I understand the owner before the split cannot be the same after the split - might be worth looking at splitting the title at the time of purchase? Also look at lender criteria around any minimum size they would lend against, we were informed most lenders won't offer mortgages on individual flats less than 38sqm. The number of lenders willing to give you a mortgage on multiple flats in the same block may also be a factor to check out too. Finally this list of lenders reduces again if your investment is through a limited company. 

 

Good luck with it all. 

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6 minutes ago, david godley said:

Hi Freeman. If not already done so, check out the quirks of changing the named ownership when splitting the title. I understand the owner before the split cannot be the same after the split - might be worth looking at splitting the title at the time of purchase? Also look at lender criteria around any minimum size they would lend against, we were informed most lenders won't offer mortgages on individual flats less than 38sqm. The number of lenders willing to give you a mortgage on multiple flats in the same block may also be a factor to check out too. Finally this list of lenders reduces again if your investment is through a limited company. 

 

Good luck with it all. 

Hi some great points to look in to . I know that freehold and leasehold can not be held by the same companies.

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Thanks for your responses everyone. The article was a good informative read.

 

I've now had the survey done and its raised a couple of problems. The first is structural movement which needs further investigation if I were to proceed. The second is valuation of the individual leasehold flats. The surveyors valuations are £15k to £20k less than the estate agents on each flat. If he is right that basically blows the deal out of the water. Not sure who to believe him or local agents I spoke to when doing my research. 

 

I've spoken to the sellers and they may be willing to drop £10k. I had then thought of keeping property under one title and getting a single mortgage , as the yield would not be bad at 11%, then selling / getting planning / developing the garages. However that would not work as the mortgage provider would not allow me to split off the garages.

 

So I think I will pass on this and carry on hunting for my next property.

 

 

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