If you are an active property investor reviewing the alternative investment vehicles available in the property and real estate investment arena then you may have already come across ground rent investment opportunities. If you are looking for super high returns (and the super high risks that usually accompany them) then investing in ground rents is probably not for you. However, if you are searching for more solid, steady returns and an opportunity to diversify your property portfolio then investing in ground rents could certainly be worthy of further investigation.
Investment Property Partners property investors guide to investing in ground rents reviews a number of issues that you may wish to consider if you are reviewing ground rent investment opportunities.
Investing in any form of property or land requires lots of drive, determination and personal courage… and let’s face it, it’s a risky business and often requires serious financial outlay and plenty of hard work for you to be successful.
The main types of direct property investment are generally commercial property, residential property and land, but there are also other opportunities open to investors that include investing in ground rents.
Investing in ground rents is however something many people have never heard of… so what is it and what does it involve?
What is a Ground Rent?
A ground rent describes the full ownership of a portion of land where a second party, normally a leaseholder, owns a long-leasehold agreement on the said land.
The leaseholder is typically the owner of any buildings or structures on the land and will be responsible for any rents relating to the building or buildings.
For the buildings to remain on the land, the leaseholder pays an agreed ground rent to the freeholder.
Therefore in simple terms, the freeholder receives a ground rent from the leaseholder who has buildings on that land.
How Long do Ground Rents Last?
There will normally be a lease in place usually for a term of between 20 and 999 years, although in the UK a period of 99 years is probably the most common.
Ground Rent Investment
A ground rent investment is a good opportunity for certain property investors, with specific investment objectives and under the right circumstances.
From an investment perspective, experience shows that it is possible to generate a return of around 5-10 per cent per annum on a ground rent.
Of course, returns at this level aren’t going to make you super rich in an instant, but what avenue of property investment does without significant risk?
Instead, investing in ground rents can be used as a lower risk way to diversify a property portfolio, which is particular important when it comes to the management risk in investment circles, especially if you want to be successful for the long term.
Investing in Ground Rents for Income & Capital Growth
A ground rent investment can involve both commercial and residential property and is often one of the easiest property investment vehicles to be involved in, as a lot of the hard work is taken off your hands by the leaseholder.
With regards to success, many investors have found the ground rent investment path to be very fruitful for them…. However, it has to be said that the options for generating greater financial returns in the long term and making increased profits year on year are not going to be as great.
The reason for this is simple… other forms of direct property investment allow you to make strategic changes to the buildings or the leasing profile of a property to increase either its income or capital value, but with ground rents you will own only the land which limits your ability to add significant value.
The buildings occupying the land belong to the leaseholder, so there is usually no scope for improvement by you and consequently no scope for future financial gains during the term of the lease.
Ground Rent Investments Offer a Safe but Steady Income
Many investors look to add value to their property investments by carrying out building improvements, refurbishments, extensions, redevelopments and possibly improving the tenant mix and the strength of any lease.
As this is not possible with ground rents they are probably not the best option to take if you want to see strong income or capital growth from your investment.
Instead, ground rents are ideal for property investors who want a relatively safe but steady income stream.
These benefits make ground rent investments an attractive asset class particularly for larger portfolio owners.
Property Investment Solutions
As a leading independent property and land investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.
If you are a property investor searching for ground rent investment opportunities, commercial property, residential or overseas investment opportunities please contact us today to discuss how Investment Property Partners can help you.
More information about ground rents, valuations and investing in ground rents… here →