Ground rent is effectively rent payable to lessors who own the freehold interest in a leasehold property. Put simply, freehold interests generate an income and can provide you with a future windfall as well. With larger properties, often there are both freehold and leasehold interests, e.g. if a property is converted into flats, a freehold and long leasehold are created.
This enables the developer to retain the freehold if they wish. For most properties there is one owner who is known as the freeholder. Freeholders can offer part of the freehold to purchasers with long leasehold interests. In such cases, it is common for the leaseholder to own the buildings while the freeholder owns the land. As a result, the leaseholder has a requirement to pay the freeholder annual rent which is known as the ground rent. Ground rents can be payable on other forms of property, such as industrial, as well as residential property. This offer is focused on residential ground rents.
Capital Alternatives’ expertise in the market for alternative assets helps you pick the best ground rent opportunities that are based within the UK with the best possible return. Capital Alternatives specialise in purchasing freehold interests in England on your behalf. Put simply, freehold interests generate an income and can provide you with a future windfall as well. When you invest, we source property freeholds which benefit from ground rents on your behalf.
Valuing a ground rent
We believe that a simple, straightforward and transparent investment product is more effective. Unlike some Exchange Traded Funds (ETFs), we do not deduct annual management or performance based fees apart from legal fees which we ensure are capped and relative to investment amounts. It is worth noting that as an investor in Ground Rents, you’ll also gain access to assets that have little performance correlation with that of more traditional asset classes such as stocks and shares – hence boosting the diversification potential of your portfolio.
In general, the valuation of a ground rent is dependent on two key criteria – the passing income and the length of the lease until reversion. There is a larger store of value in the passing income than is the length of the lease until reversion.
Prospective returns
For each ground rent offering in which you choose to invest, we expect to generate a yield of at least 4.5% per annum. This will be paid to you annually. It is of course dependant on the length of the lease but we expect to maximise your returns by capitalising on the possibility of exploiting other criteria as well, such as lease extensions. These can be particularly profitable since the holder of the ground rent can request a lump sum payment from the leaseholder.
Capital growth potential
We would expect the value of the freehold interest and your investment to increase in value over time. This can be achieved by increasing additional income (including insurance and service charge, maintenance and management fees and licence fees for alterations) on a long term basis.
Sweating the asset
Additional incentives can be gained from the occupier should they wish to carry out refurbishment or changes to the property through the payment to the freeholder of a licence fee. In addition the freeholder of the property is generally responsible for insuring it. On your behalf we will seek to negotiate a commission with the insurance company to improve your annual return. According to a recent article in Property Week, Allsop partner and residential auctioneer Gary Murphy explains:
“Ground rents can be both dry and active investments, depending on the type of ground rent you buy and your appetite to sweat the asset.“
In essence an investor would gain the following:
- Projected stable annual income of at least 4.5%
- Fresh, dynamic new opportunity
- Highly experienced management team
- Low risk – beat bank deposits
- Minimum initial investment required is £15,000
- Diversification potential
- Brand new investment offering
- Carefully selected properties
- Own the asset directly
- Easy to invest and sell
- Stamp Duty tax-efficient
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