Inexpensive British real estate?

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    Brian Dellinger

    I thought about writing a blog post about this subject, but decided a blog post implied at least some degree of knowledge, and I don’t have enough to qualify for that. So I’ll just make more of a forum post/rant. I have a certain degree of interest in Great Britain. For all of the bad things one might say about Europe, its politics, etc., I’ve quite enjoyed my visits to London. I’ve found the London (and British) property market fascinating. As most of you are aware, London property is some of the most expensive in the world. For example, for fun thought experiments, the last couple of trips I took, while there I looked for apartments for sale that were roughly in the same neighborhood and similar size and state of repair.

    A few years ago when I stayed in the Earl’s Court area, I was in a slightly dated one bedroom, decent location, a little tired but overall ok. Probably 500 square feet. Some in the building ate heavy foreign foods and so the hallways and common areas had a slightly unpleasant smell. There was close access to a Tube station, safe location, but it wasn’t a prime tourist spot. I believe the units I found like the one which I rented were $400k-$500k.

    The following year I stayed in the Holland Park area, definitely more upscale, better building, nicer flat, etc. My apartment was actually a bit smaller but was nicer overall. Prices to purchase for a unit were even higher.

    A peculiarity of many British properties–at least in cities, I understand, and definitely in London–is that you’re not purchasing fee simple title to the building. They do not have condominium laws as we understand them in the U.S. For example, in the U.S., if you purchase a condo, you’re essentially purchasing a unit within a structure that is, let’s say, one-half of the walls, floors and ceilings, everything located therein, and then a fractional interest of all common area owned by the owners’ association (e.g., if there were 50 units, you’d own your condo unit and a 1/50 share of the common area). By contrast, the London apartments are typically leaseholds in which there is a separate landowner which owns the land upon which the building sits, and you hold a very long-term lease (99 years, 125 years and even 250 year leases are ones I’ve seen). Apparently the control of the “common areas” is a little more convoluted as a result of this arrangement. Therefore, a purchaser of London real estate is not only paying some of the highest prices in the world, but is often paying for something that is less than a traditional fee simple title if buying an apartment.

    For another thought experiment, I tried looking for long term rentals in areas where I’d also seen purchases. My goal was to try and determine the rent to value ratio of an apartment. I like to listen to Jason Hartman’s real estate investing podcasts, and he claims that a rough measurement for long term rentals in a good U.S. market would be that the monthly rent from your tenant should equal one percent of the value of a property. So, e.g., if you purchased your property for $100,000 and rented it, you should be able to get $1,000 per month for it. Once again, that’s the goal, and in markets that are overheated/overpriced, you’ll find that the monthly rents are much lower than one percent.

    Anyhow, just using my vary rough gauges of trying to compare apples to apples, I think a lot of the rents in the London properties might be .25% or less of the value as currently valued! Said differently, purchasing a London property to rent at today’s prices and rents wouldn’t appear to be a good investment, and renting rather than purchasing would be the order of the day.

    That research got me curious about the prices of other areas within Great Britain, and I found this neat article:

    Many of the places in there are small towns where industry has left, but one interesting place is Liverpool. I’ve never been there, and always pictured this cold, grimy industrial city. But after reading more about it, it appears to be a potentially interesting place to visit. Waterfront, a large history of having a music scene, Europe’s oldest Chinatown (!), and much lower prices…… I may just take a look for interest.

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