Monday, 21 March 2016

Sunderland Purchase Option Diary

Following my post in November about how investors can profit from property without needing deposits by using Lease & Purchase Options I thought it may be of interest to show a real-life example of how such a deal may come about and how it can work for both the vendor and investor

To refresh your memory about Options please click the link to see the blog post from November 2015

With this particular case, we're working closely with the person brokering the deal as I thought it may be that our Landlords/Investors may be interested in learning more about this aspect of property investment

Purchase Options like this don't tend to come up through Estate Agents and are more often than not the result of a property sourcer going direct to vendors

Property sourcers are typically looking for those vendors whose circumstances lend themselves to accepting a significantly Below-Market-Value offer in exchange for a fast & guaranteed sale or to solve their property problem creatively with a Lease or Purchase Option, which gives a buyer the option to purchase a property at a later date and gives control of the property to the buyer in the meantime

The sourcer will then act as buyer and keep the property themselves or sell on as a 'deal' to investors

In this case the vendor Gordon (not his real name) has had the property on the market For Sale for over 4 years and despite a couple of offers and steadily lowering the price, he hasn't sold it and doesn't look likely to soon

It's being advertised For Sale at just under £90,000 and his outstanding (interest only) mortgage is very close to that at just over £87, even if he sold it at the full asking price there would be little if anything left over after solicitors fees & estate agent costs - he may end up owing them money

Unfortunately, Gordon bought the property with his wife in 2006 near the peak of the market and they divorced shortly afterwards - he now wants to move on with his life and move to a new property with his fiance (they are due to get married later this year)

Options do lend themselves to such a situation where there is negative or very little equity left in the property and also where the vendor is happy to relinquish control of the property to allow them to move on with their lives

In this instance the sourcer has gained agreement from Gordon and his ex-wife that they agree to sell the property for the outstanding mortgage amount (approx £87k) at the end of the mortgage term (approx 7 years)

In the meantime the buyer will be responsible for paying the mortgage and buildings insurance and maintaining the property - they will essentially act as Owner/Landlord for the duration of the option term

This is attractive to the buyer as they will hope to gain from capital growth in the interim 7 year period (if they exercise the option to buy it for the agreed £87,000 in 7 years time then they would hope to be able to immediately sell on for a profit or if they are planning to keep it, they could arrange finance based on a percentage of the the higher 2013 value)

Given capital growth cannot ever be guaranteed, the key immediate benefit to a buyer is their ability to profit from renting the property out during the Option Period without the significant downpayment of a 25% BTL mortgage deposit

It also means that it is available to those who wouldn't ordinarily qualify for a BTL mortgage, such as those who may fail a credit check or who may not already own a residential property (therefore making obtaining a BTL mortgage more difficult)

In this case the interest only mortgage payment and buildings insurance combined will come to less than £150pcm and following a light refurb the property will realistically achieve £495pcm, giving a very healthy cashflow of over £300pcm

It would be down to the buyer to fund the light refurb (as well as any ongoing maintenance) however given the potential profit from the rent alone (not factoring in any capital growth) could be over £25,000 many consider this an attractive way of profiting from property without the need to tie up significant chunks of cash with deposits

The only upfront costs (other than the work required to get the property to a lettable standard) would be the fee to the sourcer (which is typically £3,000 - £5,000 depending on the deal) plus legal expenses

This would give a Return on Capital Invested of over 40% per anum

We're at the stage where the sourcer has just gained written agreement from Gordon and his ex-wife that they are happy to proceed - the next stage for them is for them to receive specialist legal advice regarding the Option Agreement prior to signing it 

In the meantime as the sourcer has decided that he wishes to trade this deal on rather than keep it, the deal is being marketed to his investor database and the to property investment communities online

If you'd like to learn more about this deal click the image below for more details and give me call if having done so you're interested in discussing this investment further and would like to request the full Marketing Pack  

Hope you found this interesting - I'll be sure to keep you posted via the blog on how things progress for both the vendor and the eventual buyer

If you would like to learn more about Lease / Purchase Options or any aspect of property investment in Sunderland, please call me on 0191 567 8577 or email


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