Tuesday, 10 November 2015

How To Profit From Property In Sunderland Without Needing A Mortgage Deposit

Everyone knows the normal way to get into property investment is to save up a deposit and buy a BTL property. The more creative or educated investor may adopt the 'Buy, Refurb, Remortgage' model to recycle one deposit pot to purchase multiple properties over time. But what if there was another way where you could control and profit from properties without the need to actually buy them with a mortgage?

One method being employed is using Lease Options to control a property, taking full responsibility for a property for a period of time (including maintenance and paying the mortgage) and therefore allowing the investor to profit from the rent received during the period as well as any capital growth over and above an agreed (deferred) purchase price

A Lease Option actually includes 2 parts, the lease and the option, the former giving control of the property and the latter giving the buyer the right to purchase the property (but crucially no legal obligation to do so) but legally obliging the seller to sell within the terms of the agreement if the buyer chooses to exercise his or her right to buy 

As the above suggests, a Lease Option is a complicated legal transaction but that in itself should give reassurance...it's likely to involve solicitors acting for both sides and is perfectly legal and above board. Whilst they are certainly not mainstream and unlikely to be featured in the Daily Mail or Sunday Times, there's certainly nothing inherently 'dodgy' about the practice and in-fact Lease Options are commonplace in the USA and Australia and also the UK commercial property market where they have been widely used for many years

Lease Options tend to work best with a Motivated Seller, someone who has perhaps tried and failed to sell using the traditional methods or who needs to find a solution quickly due to negative equity, relocation or separation - they won't be of interest to someone prepared to sit out and wait for an offer through a traditional Estate Agent or who needs the money from the sale right now

A successful Lease Option needs to work for both parties and typically will agree that a buyer has the right to purchase the property for an agreed price at any point during the option period and during that period will take control of the property, taking both responsibility for it and profiting from any rental income received

Lease Options tend to be created for a period of years (3 - 7 years being the norm, although they can be created for longer) so buyer and seller are entering into a long term business relationship. This clearly means a Lease Option has both benefits and risks and means that it essential that both sides conduct their own robust Due Diligence

There are a number of risks, the most obvious being if the legal paperwork isn't created correctly in the first place. This really isn't something that can be done DIY, even by experienced investors, and even appointing a conveyancing solicitor may not be suitable as most are not sufficiently familiar with Lease Options - you really do need to seek out a specialist (and I can point you in the direction of a number of specialists if needs be)

Other risks include if the vendor goes bankrupt or dies during the option period -  depending on the way it has been created the Lease Option could be accepted by trustees and/or beneficiaries or could be challenged if they feel it was unfair, creating both a costly & time consuming need to defend & legally enforce the agreement

Lease Options are transferable, meaning there is a growing community of educated investors who are familiar with them and are comfortable trading such 'deals' when they arise 

Typically they'll not arise through Estate Agents or Letting Agents (unless they have undertaken specific & detailed training on Lease Options, as I have) and will often come from more unusual sources (or 'Sourcers') - have you often wondered what all those scruffy, badly written, usually yellow "We Buy Houses" boards are all about?

Without doubt Lease Options are not for everyone and it is very much a non-mainstream 'Marmite' strategy but it can offer those unable buy a property through the traditional methods a way to control and profit from property and it can also present deals that ordinarily wouldn't come to market - if you want to have a chat about Lease Options (I'll be able to recommend a number of ways to educate yourself further on them), feel free to give me a call on 0191 567 8577 or email neil.whitfield@belvoirlettings.com

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