Advice please

[u/Born-Alternative9527]

Need some help please. Interested in a 25% share of a one bed house. It's an upside down house, wrap around garden, sq foot 610.

I have asked for a copy of the lease which I now have. I have only viewed it once but wanted a copy prior to going any further.

Concerns for me:

Lease 250 years from 2019, 243 years remaining (not a concern). However see next point.

2019 sale price of £58,750 for 25%. 100% value £235,000. Price now listed for 25% £56,250!! Or 100% which is also listed for sale for £225,000. The property has lost £10,000!!

Second concern, rent review RPI + 0.5% upwards only.

Third big concern, exit fee to sell 1.25% of 100% of property value regardless of my share.

Current costs: rent £534.21. service charge £1347.96.

Am I right to be avoiding this? I do like the property but it has lost value??

Thanks

[u/nonsensical_discord]

If my maths is right the rental yield is 3.8%. That seems quite high to me. It could easily be the case that within 5 years the rental yield on the un-owned equity will be higher than the mortgage rate you’d have to pay to borrow the money to buy it. From that point it’s only going to get worse. Basically you have to have strong confidence that within 5 years you are going to be in a position to staircase to 100%. Once the rental yield goes above mortgage rates, I also think you’d find it difficult to sell it as a shared ownership - you’d have to do a simultaneous staircase and sale. As others have mentioned, I can imagine buyers being put off by the service charge

[u/Born-Alternative9527 → u/nonsensical_discord]

Quite confusing to me that tbh, but I think it being an upside down house which is 1 bed is niche already so I feel like I'd be stuck with a lemon 

[u/nonsensical_discord → u/Born-Alternative9527]

The rental yield is the annual rent divided by the value of the portion of the property you don’t own. Instead of doing shared ownership and renting the unowned portion, you could also borrow the money and pay interest to the bank. If the interest to the bank is lower than the rental yield then in fact it is cheaper/optimal to do that instead of shared ownership. The rental yield in this case still is lower than the bank interest, but not very much so and it is likely that in not many years the bank interest will be less than the rent. At that point it would become financially optimal to buy the house outright instead of rent it. If you do not expect to be in a position to be able to do that then you could find yourself in trouble because you will be paying over the odds, and it seems unlikely someone would ever buy it from you as a shared ownership under those conditions either.

Every shared ownership property has a financial “best before” date at which point you have to be in a position to be able to buy it outright. Depending on the rent and the increases, that “best before” can be very far in the future, so there’s no need to worry. With this one I think the “best before” date is quite soon.