Buy-to-let landlords should not be deterred from acquiring leasehold properties, but rather target homes with ‘high service charges’, and then set up a Right to Manage firm in order to increase profitability of rental property and widen market appeal when selling in the future, according to PBM.
Given that many people are deterred from purchasing leasehold property due to high service charges, the property management company says that buy-to-let investors can increase the value of their investments by acquiring properties with high service charges, and then setting up a Right to Manage company.
The idea is that buy-to-let investors can put in offers for properties with high service charges while competing against fewer rival bidders.
Service charges range up to £5,500 a year in London, but once an investor owns a property, landlords can increase its profitability if they can successfully form a Right to Manage firm.
Not only will this make the property cheaper to manage in the short-term, it should also increase its resale value as it becomes attractive to a larger group of potential buyers in the future.
Reforming service charge, to provide greater transparency and oversight, through the creation of a Right to Manage company has, according to PBM, been proven to reduce annual service charges by £60,000 for an 80 apartment building in one case.
Reducing monthly service charge costs will result in a more profitable asset while it is being rented and make it more marketable when it comes to selling.
To form a Right to Manage company support is required from a minimum of 50% of apartment owners in a building, giving authority to the company directors to tender for a new management company.
Gary Cane, managing director at PBM Property Management, said: “Buy to let investors would see a two-fold benefit of setting up a Right to Manage company. Right to Manage provides greater transparency over how costs are determined and why certain suppliers are selected for repairs and maintenance. We have seen time and time again the opportunity Right to Manage provides for people to bring down there annual service charges to a realistic sum that is fully understood by residents.
“The current market is making it more difficult for landlords to secure the yields they were expecting to achieve, with record numbers deserting the London property market Right to Manage presents an opportunity to widen the appeal of the property attracting more potential buyers and increasing competition. It would create an optimal selling environment for buy to let investors looking to exit the rental market in 2019.”