Leasehold: only for the brave and well-informed 

When a $2.5 million property can’t attract a buyer at $100,000, you know there’s something very wrong. What could possibly reduce a property’s value by 96%? One little word: leasehold. While you own both the land and the building on your freehold property, you only own the building on a leasehold and you pay ground rent to the land’s owner. In other words, you only own the depreciating asset – the other guy owns the appreciating bit.

We don’t know any investors who buy leasehold, despite the incredibly tempting prices. (A one-bedroom apartment for $95,000 in Freemans Bay, anyone? No? How about land in Kohimarama for $39,000?)

The basic advice for all our clients is this: don’t touch it with a bargepole. There are people with cashflow positive leasehold properties who are laughing all the way to the bank, but these people are far outnumbered by the miserable individuals stuck with unexpectedly huge hikes in ground rents. If you’re even contemplating a leasehold property, lawyer up. Know exactly what you’re getting yourself into and the risks involved.

 

Leasehold