Buy-to-let is 27 years old and a significant number of landlords now have many years’ experience under their belts.
This experience, combined with recent increases to the tax burden on investment property, has encouraged many investors to investigate new ways that they can diversify their portfolios and maximise their returns.
One example of an investment category that is growing in popularity as a result of this is Multi Unit Freehold Blocks (MUFBs).
A MUFB is single property that is split into flats and instead of having individual leaseholds, it’s held under a single freehold title. Each flat is self-contained and has its own kitchen and bathroom facilities.
The property will have shared hallways and sometimes a garden, and it offers investors economies of scale, with the ability to buy one property that can then be let out to multiple tenants on separate Assured Shorthold Tenancies (ASTs).
In fact, the difference between an HMO and an MUFB, is that each unit in an MUFB is self-contained with its own private entrance and separate AST, as opposed to an HMO property which has shared kitchen, bathroom and communal areas, and no AST.
With an MUFB, there is also the potential for investors to further increase the value by investing in the legal work to create an individual title for some or all of the residences and then selling those units on separately.
MUFBs can range from small blocks of two or three flats, to much larger properties. At Castle Trust Bank, we recently completed a £4.6m Light Refurb Bridge to fund the renovation of a large MUFB in Newcastle.
We worked with the broker to structure a loan for their client, secured on Saint Marys College, which was a 57-unit MUFB in Newcastle with a purchase price of £6.3m.
The client was a limited company with two directors – a UK national and an Israeli national, both of whom were seasoned developers with five properties currently owned between them.
We were able to provide them with a loan of £4.6m to purchase the property and carry out the works, with the intention of achieving a GDV of £9.3m.
An MUFB of this size is perhaps not typical, but this case demonstrates how varied, and potentially how profitable, the MUFB sector can be, with properties ranging from just a couple of units through to large stand-out properties worth many millions.
Whatever the appetite of your property investor clients, an MUFB could help them to diversify their portfolio and potentially increase their returns.
Anna Lewis is commercial director at Castle Trust Bank
