- 63% of under 35s are put off purchasing a new build home due to high service charges
- Setting up a Right to Manage company would increase profitability of rental property and widen market appeal when selling
Landlords can increase the value of their investments by buying properties with high service charges, then setting up a Right to Manage company. Almost half of buyers (46%) in London are put off purchasing homes due to high service charges, according to research undertaken by property management company PBM. This means 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 with the average Londoner paying £1,650 per year. Little wonder then that 63% of under 35s are put of bidding for a property with service charge, especially when 57% of Londoners have experienced an unexpected service charge increase. But once they own a property, landlords can increase its profitability by setting up a Right to Manage company. Not only will this make the property cheaper to manage in the short term, it will increase its resale value as it becomes attractive to a larger group of potential buyers in the future. This is increasingly important in London where 68% of properties and 98% of all new build properties are classified as leasehold.
Reforming service charge, to provide greater transparency and oversight, through the creation of a Right to Manage company has 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, comments, “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.”
Since the introduction of new taxes and regulations for buy to let investors, set alongside challenging market conditions, this section of the property market has found it increasingly challenging to secure a strong return on investment. Recent figures show that the number of landlords registering rental property in London is down 41.3% on the year.