Lease Options for Landlords/Investors

Lease Options started to become popular in the UK in 2008 due to the credit crunch & the difficulties in raising finance. A proven strategy - lease options have been widely used in Australia and the USA for several decades now. In 5 years you will see EVERYBODY using them. Lease options are one of the few strategies that are completely legal and in fact work well in a recession. Simple to implement - just a few straightforward legal agreements needed and requires no mortgage or funds for the mortgage deposit. Lease Options are creative ways in building a property portfolio simply by leveraging and controlling the mortgage debt that the seller needs to continue paying. A lease option is simply a long term lease agreement usually between 3 – 19 years where a monthly lease payment is made to the seller's mortgage lender or to the seller to buy or exchange contract at a date within the agreement timescale or at the buyer's discretion. This can be an ideal scenario for the vendor who doesn't wish to take on their property commitments or if they have fallen foul of a tenant defaulting on rental payments and as a consequence have reached financial constraint . A lease option would allow for an immediate solution.

Some advantages for using lease options to Investors are as follows;

• No Stamp Duty payment.
• No Management costs or repair work.
• No funds for the deposit required.
• No Mortgage required.
• No equity from existing property required.

The benefit to the investor are that they can rent the property for more than the underlying lease/mortgage payment and they can fix a pre-determined price for a long period of time usually 6 -12 years, by which time house prices will be higher than today. If they aren't significantly high enough to warrant resale or completion of the option the investor can continue to benefit from the cashflow and extend the period of lease agreement for a further term.

Some advantages in using Lease Option Agreements for Sellers/Investors

• Vendor sells a property with no realistic prospect to sell and/or doesn't get repossessed and/or bankrupt.
• Investors get property at BMV.
• Positive cash flow from rent + rents are usually higher using this system.
• It is a win-win-win scenario (i.e. both vendor, tenant buyer and investor can benefit from it).
• You know how much you are going to make.
• No rental voids.
• No refurbishments.
• Same security as commercial property.

Example of Sandwich Lease Option Agreement