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Value Ground Rents

已有 191 次阅读  2018-04-27 23:01   标签ground 
In this article I will seek to explain how to value ground rents, and what the relevant factors are.

The value of ground rents is a combination of the income being received and the amount of time until the lease ends. The former has a greater impact on the ground rents investment value, unless the lease is very short indeed.

The rent review pattern of the ground rent income has a large impact on their value. The shorter the gaps between the review period the more attractive the ground rents are as an investment. As a rule of thumb a 5 year review pattern adds 15% to the value of a ground rent compared to a 25 year review pattern.

The mechanism for rental increase is also significant. Inflation linking is valuable, so reviews to the higher of RPI or CPI are highly sought after. With RPI running at 4% p.a. at the time of writing this is worth more than the traditional doubling every 25 year reviews. This equates to closer to 3% p.a. compound growth.

The length of time until lease reversion of the ground rent is also relevant. The shorter the lease the closer the reversion to the freeholder, so a greater value is placed on the ground rent. This is because the Net Present Value of the reversion is higher the shorter the outstanding lease is.

The ability for the ground rent landlord to provide management and insurance services to the lessors is also desirable. While most reputable landlords will appoint independent managing agents, the entitlement to insurance income is attractive. This is largely only available for ground rents on apartment schemes however, as ground rents on houses rarely come with insurance entitlements for the ground rent owner.
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