As Buy to Let landlords become more sophisticated, traditionally specialist types of property investment become more common. In fact, research from a recent BVA BDRC Landlord Panel found that 13% of landlords own a multi-unit block, with an average yield of 6.6% – the second highest yield for all types of property owned.
Unlike an HMO, which provided the top yield, a multi-unit block contains separate, independent residential units, each with their own AST agreement. Each household has its own entrance and private areas into which no one else has right of access, and there are also likely to be common parts, such as a hallway or garden, that all households have the right to use. Examples of multi-unit blocks include purpose built blocks of flats, houses converted into flats, and very occasionally a number of houses all held under one freehold title.
Multiple-unit flats are lucrative for investors because they provide economies of scale. They can also be lucrative for brokers as, by their nature, they tend to be larger deals. Often a multi-unit block provides opportunity for investors to realise greater capital gains, as it’s possible to increase the value of each unit by separating the title and selling them off individually.
This was the case with a client we recently worked with at Castle Trust Bank. The client was a newly incorporated UK-based limited company formed of two directors, both with existing UK lending experience. They wanted to purchase a multi-unit block of flats, all held on one freehold, based in the West Midlands – and the broker needed a quick completion to secure the transaction.
The multi-unit block contained 14 units, had a total value of £1.7m, and individual leasehold agreements for the properties had yet to be arranged. So, this presented an opportunity to increase the overall value by separating the leases and selling some or all of the flats individually. The clients were looking to raise 75% LTV to purchase the whole block on one loan, which we were able to provide with a cross collateral charge – and completed in 24 days.
The clients then had the opportunity to increase the value of the 14 units by carrying out the necessary legal work to create individual titles for each of the properties so that they could be sold independently.
We are seeing more enquiries along these lines, where investors are seeing the potential in taking on multi-freehold blocks and, at Castle Trust Bank, we’re often able to structure bespoke solutions that enables investors to achieve their objectives, giving them the flexibility to make decisions as to the best course of action during the process. As more landlords look to invest in multi-unit blocks, make sure you are partnering with the right lenders to help them make the most of this lucrative opportunity.