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Periodically, we come across cases that we believe other property investors would be interested to learn about. The summary below is one such case, highlighting the client’s unique requirements and how we provided a solution they were happy with. We hope you find this recent case study helpful!
What is Splitting Property Titles?
Splitting a property’s title is a legal process which involves separating a portion of the legal title to achieve a specific purpose.
This could include splitting a parcel of land from an existing property you own to then develop on or splitting a freehold block of flats and creating separate leasehold titles for each individual flat.
The Property
My client purchased a freehold building which consisted of a vacant ground floor commercial space with 2 existing flats on the first floor with tenants in situ.
When the property was purchased, this would have been classed as a ‘semi-commercial’ asset due to the commercial and residential elements being on one freehold title.
After obtaining planning permission, my client converted the ground floor commercial space into 3 separate residential flats; meaning there were now a total of 5 flats in the building.
If my client didn’t split the titles, this property would be classed as a ‘multi-unit freehold block of flats’ as all units are on one freehold title.
My clients aim was to split each flat onto their own leasehold titles, as the values of the individual units would be greater than that of a multi-unit freehold block of flats (due to lenders applying a ‘block discount’ on freehold blocks).
My client initially purchased the property using a bridging loan which allowed the works to be carried out.
When the conversion was complete, we then refinanced each flat onto its own individual long term Buy to Let mortgage.
The Finances
Original Purchase Price: £300,000
Bridging loan: £217,500
Works Costs: £160,000
Refinances:
Flat 1 – £125,000
Flat 2 – £150,000
Flat 3 – £200,000
Flat 4 – £150,000
Flat 5 – £100,000
Combined Value: £725,000
- My client was then able to achieve 75% LTV against each individual flat, which gave a combined loan of £543,750.
- After repaying the bridging loan in full (£217,500), this meant my client was able to capital raise a huge £326,250!
- If you then take out the build costs of £160,000, the finance costs approx. £26,000 and the clients initial deposit of £109,000 this meant my client managed to pull out all of his money plus raise an extra £31,250 profit!
Solution
As you can imagine, trying to tie up 5 separate mortgage applications to complete at the same time could turn into a logistical nightmare. With this particular case, we were able to find a lender who could refinance all 5 flats.
This was beneficial due to:
1) The underwriter was able to underwrite the cases as one.
2) The valuations all took place on the same day at the same time by one valuer.
3) We were able to instruct the same solicitor to work on all cases rather than having multiple solicitors acting on the transactions.
4) The client also benefited from individual valuations rather than a ‘block value’ which can sometimes see a discount of 10-15%!
Important Points to Consider when Splitting Property Titles
- You always need to consider any possible stamp duty liabilities. If you are transferring to a subsidiary company, you will be able to obtain stamp duty relief.
- The transfer must take place at full market value.
- When transferring property to a subsidiary company, you will need to speak with your accountant to determine whether there will be a corporation tax liability.
- You will be eligible for individual valuations rather than a block value (which can sometimes see a 10-15% discount)!
- Once the titles are split, you can sell an individual unit at any time without added complexities.
Client Feedback
“I can’t express how happy I have been with Megan’s service. The deal took nearly 2 years from start to finish, with Megan’s help we were able to get a fantastic rate on our bridging loan to get into the deal. Then with continuous support through planning and the build out, Megan managed to find a lender in which was happy to proceed with the way we wanted to exit the deal.
Megan was unbelievable with helping chase solicitors and ensured we got the refinance over the line. I have used Megan on every property deal I have ever done and will always continue to do so. Thanks again Megan!”
How can Advocate Finance help?
We have experience in splitting property titles as we have completed these cases for various clients, so if you’re looking at splitting property titles, please don’t hesitate to contact me below.
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