UK Property Investment Forum & Blog

August 17, 2011

Are lease options new?

Filed under: BMV Deals,Buy-to-let,Financial crisis,General,Global economy,Housing market,Lease Options,property strategies — Tags: , , , , , , — sudeshnac @ 10:06 pm

In my last post, I explained why ‘Lease Options’ was the best and smartest property strategy in the current market conditions. However, is this a completely new idea or did it already exist somewhere in the uk, unbeknown to us? Well, actually, Lease options have always existed in the uk mainly within the commercial sector and has been used in buying and selling for a very long time, often being used by developers to acquire properties for refurbishment to improve value before purchasing to let out, or to just on sell to other buyers.

 Just because lease options have been commonly used with commercial property, there is nothing to prevent them being used with residential property either. The fundamentals of this financial instrument are identical in both cases. So it gradually evolved within the uk from around 5-7 years back, at first meeting with a lot of misunderstanding, criticism, suspicion and negative reactions from legal entities like solicitors, when it came to getting the legal aspects of the transactions completed. However, as we all know, market conditions began to change, particularly with the near collapse of the financial world, and the property boom, and few mortgage lenders willing to lend unless you had a 40-60% hefty deposit available, and house prices diving to crazy levels. First time buyers were virtually frozen out of the market and rental demands began to soar, in the wake of thousands unable to keep up with their mortgage repayments leading up to so many homes being re-possessed. Suddenly, where previous strategies like ‘buy- to- let’, ‘BMV and ‘no-money down’ began to get more difficult to maintain, Lease Options seemed to flourish and indeed  with a win-win viable option for all, and the most realistic strategy for the times we were living in, many jumped on the band wagon including the government with ‘Right to buy’ or ‘Shared Ownership’ schemes or ‘Rent- to-own’ schemes many property investors started to learn about it, going to courses etc to try to benefit from adapting this strategy to the hard-up investors and first time buyers who could not obtain a mortgage right now. Bringing the situation right up to date, the current global crisis in the economy including the unprecedented downgrading of America’s credit status, and the euro crisis are yet even more factors that can only put more pressure on our housing market in the Uk in the long run. So Lease Options may be here to stay for much longer than we thought….and perhaps become a panacea for many ills.

 Next week we will be exploring in more detail all these different schemes and aspects of lease options that have evolved and are still evolving in the UK house market, and to make sense of what lease options has come to mean to our property investors and buyers alike in today’s challenging world.  

 Till then, ponder on the above thoughts and try to research what on what the people around you perceive of lease options….you may be surprised by what you find!

 Sudeshna Choudhury

August 8, 2011

Creating Positive CashFlow Through Lease Options

Filed under: Lease Options — Tags: , , , , , , — sudeshnac @ 7:47 pm

Last week we looked at how lease options had the best exit strategies and now we will see why it is the best option in the current market conditions to create positive cashflow for the seller yet most beneficial to buyer at the same time!

Let us assume that you have an investment property which is not performing well cashflow-wise or is in negative equity. You want to sell it but are using special terms to allow you to achieve a specific goal.

You create a ‘vendor terms sales’: The vendor or seller creates the terms and conditions for selling their property to a buyer by using a lease option or an instalment contract. In this, both parties are benefited mutually i. e The vendor gets immediate one-off option fee and regular cashflow option + rent payments per month from the buyer and can later sell at a decent profit when the buyer exercises their right to buy the property, which is also good for the buyer as the purchase price is effectively frozen at the agreed price held for the option term for the buyer, so protecting them against price rises.  

Technically speaking, ‘vendor terms sales’ is when a property is sold to a buyer free and clear of debt. No mortgage encumbers the property when the vendor on sells the property to a new buyer by instalment sale or lease option.

Most landlords have an underlying mortgage on their property. If instead of carrying the mortgage, a landlord contemplates selling his property incurring a [potentially big] loss in a falling market he should use lease options to first improve his property cashflow then sell at a reasonable price rather than being forced to sell [at auctions].

You can create a positive cashflow machine when your buyer exercises their option:

e.g.

10 houses x £350/mth profit = £ 3,500 total monthly cash flow

25 houses x £350/mth profit = £ 8,750 total monthly cash flow

50 houses x £350/mth profit = £17,500 total monthly cash flow.

You can fund new property purchases using the back -end profit that has been released when your buyer exercises their option!

So it starts to get really exciting and lease options is true cash reality!! Next week we will look at if options is new in the uk and how to understand its value in the current economic climate.

All for now, folks!

Sudeshna choudhury

July 4, 2011

What are the exit strategies for Lease Option Buyers?

Filed under: Lease Options — Tags: , , — sudeshnac @ 9:16 am

We have already discussed the various exit strategies of the traditional buy-to-let and cash purchases and most would agree they are good strategies but limited by their very nature of strategy. However, with the lease option strategy,  a whole new exciting way of looking at exit strategies starts to emerge!

For a start, the buyers are in a different category to the normal investor i.e. they are actually ‘renting to own’. At no time are they ever under any pressure to purchase, except from their own personal commitment to actually purchase the house.

Secondly, the Buyer chooses not to purchase after their lease option is over, they can simply walk away. Or they can stay on as tenants if it this is agreeable to the seller. Or they can ask for an extension. In this case, the seller may choose to re-negotiate some or all of the terms such as sales price, length of lease option, and amount of option payments credited towards the purchase. The seller may choose to collect another lump sum option fee and different instalment option fees that may be applied to the sales price of the property.

Therefore, this is what can happen:-

1) If the Buyer chooses to exercise their option; they will apply their option fee(s) paid to date towards the purchase price. They will get a mortgage from a bank, building society or other lender. When a buyer exercises their option, the
seller keeps the option fee(s), the rent, along with their back-end profit

2) If they are unable to get a mortgage or the mortgage of their choice, the seller may consider offering them another lease option agreement on re-negotiated terms.

3) If a buyer chooses not to exercise their option, the seller keeps their option fee and the rent. They would not collect their back-end profit, but they can re-market the property and sell it again on a lease option.

So you can see why Lease Options is the most viable property strategy in the market today and actually has the most flexible and practical exit strategy of them all! Next time, we will look at why this is relevant to cashflow and profitability in helping everyone achieve a win-win situation.

All for now…
Sudeshna Choudhury

June 7, 2011

What is a Real Below Market Value Property Deal?

Filed under: BMV Deals — Tags: , — francis.emery @ 7:30 am

A normal Below Market Value (BMV) deal is a property transaction where an investor is supposed to buy a residential property at a significant discount.

For example, a 25% discount on a property valued at £200,000 means that the investor can make a theoretical profit of £50,000 if he is able to resell the same property at its initial value.

The basic figures are as follows:

  • Property Estimated Value (PEV):                                              £200,000
  • Property Purchase Price (PPP):                                                  £150,000
    (25% cheaper that the PEV)
  • Property Projected Resale Price (PPRP):                                £200,000

The theoretical profit is calculated as PPRP – PPP = £50,000

If you are, or was, a seasoned investor receiving hundreds of deals per day, you know that property sourcers or property deal advertisers don’t always use the same terminology to describe the financial information of a BMV or discounted property purchase.

An investor usually has to process a certain amount of information from a property finder or sourcer in order to check “the deal”.

In general, the property deal information covers the following:

  • The level of discount
  • The property location
  • A description of the property
  • Property financial information
    • Current open market value
    • Discounted price
    • Achievable rent
    • Potential or existing mortgage information
    • Fees and legal costs (included or excluded) to complete the transaction
    • Timeline and conditions required to complete

Warning 1: There is no standard or consistent fee structure among BMV deal suppliers across the nation.

Warning 2: Many deal suppliers “repackage” deals received from a primary supplier. Therefore, they act as a deal distribution. In these cases, the investor or buyer cannot determine how fees are distributed between the primary supplier and the deal distributor (or re-packager). Consequently, there is no transparency in the fee distribution in a chain of deal suppliers.

Warning 3: The financial elements in a deal description could be false or, let’s put it this way, they could be inaccurate. The antidote is a requirement that a deal uses “RICS” certified valuations – and bases a discount on the same. This is not an absolute guarantee against false figures, so for your own protection against loss you must know your dealer’s reputation and use your own due diligence methods to ensure that the entire information pack on a deal is trustworthy. We describe our high level due diligence method next.

Read our valuable FREE Report:

How do you make £millions shifting from “Below Market Value”

to “Lease Options” Property Deals…?

http://bfr-invest.net/pibwp/from-below-market-value-to-lease-options-property-deals

May 18, 2011

Introduction to a Paradigm Shift for UK Property Investors

Filed under: General — Tags: , , — michelles @ 9:27 am

Introduction

The reason why Below Market Value deals were so successful with investors was that they were perceived as an easy-to-understand way of making money out of UK residential properties, with minimalistic cash investments.

However, since 2010 things became very different. Historically, the mortgage drought that started in mid-2007 in the United States of America reached the UK by the beginning of 2008 and then deteriorated throughout 2009.

The current situation in the mortgage market is just a mere reflection of the global financial crisis, which, we believe, is more a crisis of trust between investments, financial institutions and their regulators rather than a financial crisis per se.

The implications in the UK property market are profound; touching every market player from      first-time buyers to vendors, estate agents to letting agents, mortgage lenders to mortgage brokers, and property investors to tenants.

Up until very recently, market players, ‘smart property investors‘, or sophisticated investors always managed to find ways to pull out deals at 20%, 25%, 30% or even – for those with insider knowledge –  50% below market value. However, things are very different now. No one knows how the global financial crisis will unfold, despite the media wanting us to believe that a recovery could surprise us at any time.

The smart property investor has become a mere mortal man… and just like anyone else, he is not guaranteed to get a mortgage, despite an impeccable credit rating.

No one is guaranteed a mortgage anymore

The smart property investor’s due diligence is no longer based on the profitability of a deal, but on the ability to get a mortgage or bridging loan for an acquisition or a buy-to-let remortgage, which converts equity into cash.

And as if things were not complicated enough, many good property deal sources and packagers have dropped their standards.

25% off market value…?

The market value is guaranteed by a RICS valuation?

But what does it mean in a falling market…? It means uncertainty!

The market never rests and that’s a good thing. Newer trends have seen a shift from BMV to Lease Option deals. This is confirmed by the fact that, recently, a number of property sources have started to offer Lease Option deals.

So if you’re a property investor looking for Lease Option deals in the UK, how do you know your favourite property sourcer or deal packager has maintained his deal quality when shifting from Below Market Value to Lease Options?

If you want to continue making money during this recession/depression, it is important to know the answer to this fundamental question. And it is crucial, if you are a sophisticated investor, to understand how you could optimise the overall financial performance of your residential property investment portfolio by having the right mix of buy-to-let versus Lease Option properties.

Read our valuable FREE Report:

How do you make £millions shifting from “Below Market Value”

to “Lease Options” Property Deals…?

http://bfr-invest.net/pibwp/from-below-market-value-to-lease-options-property-deals

April 13, 2011

How To Stage Your Home For A Quick Sale

Filed under: General — Tags: — francis.emery @ 8:51 pm

How To Stage Your Home For A Quick Sale

When property and real estate agents talk about staging your home, they are referring to a method of decorating that is designed to showcase your home’s best assets, impress buyers and sell quickly for the highest possible price.

Because not all sellers stage their homes, especially homes in lower price ranges, this technique is supposed to give you an advantage if you do use. Read on to find out how.

http://www.investopedia.com/articles/mortgages-real-estate/08/staging-home.asp

Alternatively, if you really want an unfair advantage, if you really want to learn how to make real cash in a sane and profitable  manner but help others,  thereby increasing your self-worth (and vanity!),  read further …….http://bfr-invest.net/pibwp/general-property-investment/cash-is-reality

Francis Emery

February 26, 2011

Oil Price and UK Property Investment

Filed under: General — Tags: , , , — francis.emery @ 12:57 am

A decade of UK property investment

Between 1996 and 2006, UK property was everyone and his kid sister’s investment of choice. Property investment was portrayed as guaranteed-quick-buck. All you had to do was follow a property TV program or go to a would be millionaire property seminar, then buy properties and somehow whatch them soar in value. Bingo, you joined in “the property game” and so did I!

Where are we now in 2011?

On thisismoney, in the beginning of August 2010, I remember reading: “Petrol price to hit £1.26p a litre by 2011″. Though I still wonder where did they get their forecast from (perhaps they have a secret little crystal ball), there forecast indeed was correct. This week I checked in my area and found out that the average litre of unleaded or diesel was around £1.30 a litre with the highest prices exceeding £1.40 a litre!

What’s oil got to do with UK property investment?

You may ask.
If you’re still a property investor or a landlord. if you’re considering become one because you’re brave enough to face risk and uncertainties, the question oil price has link with UK Property Investment and indeed elsewere.  Since our blog is focused on the dynamic of property in the UK, so let’s just explore that relationship oil-property for a moment.
Everyone and his kid’s sister property investor do not always pay attention to macro economical trends, currencies and commodities. This take more thinking than watching a TV program or attending a seminar; plus, you could get it wrong. Should you stop thinking? Obviously not, so let’s try.

First, if oil prices continue to go up and reach record highs, this will hurt all of us who are not filthy rich. The UK economy and indeed the world economy depend on much on oil, which means there will be direct consequences  on transport (for people) and (transported) food; two key elements of every household’s budget.

Second, with less money available in household’s budget, property actors (tenants, investors and landlords), all of us outside the filthy rich club will spend less toward maintaining, buying, investing in or renting properties. Therefore do not expect house prices to go up even if suddenly the banks decide to massively turn on the credit taps to boost the UK economy.  There won’t simply be enough cash in circulation to chase up the services that properties fullfil so not high house price inflation and actually other factors such as interest rates could even cause property prices dive deeper than 20% from what they are now. So sad?  
 

How far up for oil – how far down for property?

Our opinion is that crude oil may well exceed $200 barrel in the next 12 months if not before. But unless you are investing in oil, you really want to know how far property prices may go down.  Some say another %20, other another 40% and the optimistic even believe that we’ve reached the buttom. That’s all too confusing I agree.
I would like to say: “it doesn’t matter how far down or up property prices go”as long as you can sell it in pieces every month…

UK Property Lease Options Investing is the adequate cash flow investing strategy

Yes, we are bullish on moving from property capital investing to property cash flow investing. In time of recession, cash flow is even more king. If you can maintain a positve cash flow or enhance your position irrespective of the market price trend then who cares how far up, down or sideways?

Francis Emery

March 28, 2010

How each exit strategy works toward wealth creation?

Filed under: General — Tags: , , , , , — sudeshnac @ 9:17 pm

Last time, we discussed why it was important to have exit strategies before we had even considered buying a property and hopefully you will now begin to realise just how it was very important to know this information because it was not only of immense practical necessity, but also because it would help you to avoid the worst pitfalls ot buying property which has plagued so many investors over the last few years and especially today’s property market.

We will now discuss each of these strategies and how it works towards that all important goal for every property investor i.e. wealth creation.

1)  Buy Investment Property and Hold

 The first step and priority towards your goal of wealth creation is to have your tenant pay off your mortgage. The property should continue
producing positive cash flow until the mortgage is paid off. Remember to ensure that the rent you charge your tenant also covers for expenses such as agents letting fees, service charges, repairs and tax, otherwise all you are doing is paying for this out of your own pocket and not really building any wealth at all!  Positive cash flow is the key here for sustaining this strategy so that, in the long term, the capital appreciation of the property increases in value, so you can then re-mortgage and enjoy the equity tax free or if desired, sell a few such properties from your overall portfolio and realise the profit less capital tax.

 
2)  Buy Investment Property, Refurbish and Sell for Cash.

The first step towards this kind of wealth creation and priority is to renovate the property quickly to reduce holding costs and re-sell for cash profit. It would be an extremely prudent idea to research and check out your building contractors’ costs by getting at least three quotes ahead of purchase, and work out your estimated calculations beforehand to see how much cash you have available to sustain the project while it is being renovated, as you will have to pay the mortgage for a few months, service charges, lighting , heating and water bills, leave alone paying for renovating and legal costs before and after sale of property. If you borrowed this cash, you will also need to take into account interest charges for the period of time it takes to do- up the distressed property. You can see why the sooner you finish the project, the more profit and more wealth you can realise. This strategy, by the way, is still a very viable option in today’s markets, as it is not dependent on the rising and falling nature of property prices, as there is real value in equity being created in the value of the property by renovating and improving it.

3)  Buy Investment Property and Sell on a Lease Option.

 The first step again towards this kind of wealth creation and priority is to receive a healthy positive monthly cash flow. Lease options is the best strategy, in my opinion, in maintaining this amazingly positive cashflow, with a lot less resistance and difficulty than the other strategies mentioned above. This will be expanded in more details in my next article, but suffice it to say that the payment of an option fee by the    tenant-buyer at the beginning of the contract, as well as the slightly higher rent for the privilege of having the option to buy the property at an agreed time later, are very positive cashflow for the landlord-seller/investor. (Of course, to be fair to the tenant-buyer, this option fee as well as the extra increased difference in the market rent all go as credits towards the purchase of the property by the tenant-buyer, but the key thing here is to remember this is ready cashflow for use by the landlord-seller at the beginning of the lease option deal and can be used to create even more wealth!)

 The second priority is to receive back-end profit, when your tenant-buyer exercises their option to buy. As the price of purchase has been mutually agreed before the lease option deal was signed by the tenant-buyer and landlord-seller, it offers an advantage to both parties i.e.which offers a fair price to the former in a fluctuating market and at a time convenient to when he/she is able to save up and afford to purchase the property, as well as offering to the latter a decent back-end profit as a result of agreeing a purchase price that takes into account the increased appreciation of capital value and equity in the property at the later time when the tenant buyer exercises his/her right to use the option to purchase the property. So in effect, you the property investor, or in this case, the landlord-seller, can continue to enjoy cashflow thoughout the deal, from beginning to the end of this period of the option, in both small and large amounts due to the option fee, rent and back-end profit -not bad at all for generating your wealth creation!

Next time, we will look more closely as to what exit strategies we should be considering within the exit strategyof lease options itself, which is itself a fascinating topic all of its own, and one which anyone thinking of using the lease options strategy would be wise to learn and apply!

Till next time then…

Sudeshna Choudhury

March 9, 2010

Wealth Creation Through The Right Exit Strategy

Filed under: General — Tags: , , , — sudeshnac @ 3:36 am

It is generally accepted, especially in the current property market conditions, that it is crucial to know your exit strategy before you buy a Property. “How will I make money with property?” This is the first thing many have in mind when they show their first interest in property investing. Rather than that, the first thing you need to start with is to determine, before you buy any investment property, how you plan to exit or sell the property.

A good question to ask oneself then is : -”What are possible exit strategies?” Well, these listed below are the tested and tried strategies most property investors have used so far:

1. Buy Investment Property and Hold
2. Buy investment property and have your tenant pay off the mortgage.
3. Buy Investment Property, Refurbish and Sell for Cash. You refurbish the property making cosmetic, mechanical and/or structural changes and sell for cash. Sometimes it’s called  ‘Buy-To-Sell’, or a ‘flip,’ if you hold it for a short length of time while making changes and then resell.
4. Buy Investment Property and Sell on a Lease Option. You then sell the property to your tenant/buyer using a lease option; they choose to exercise their option to purchase sometime in the future.

Of these, as the previous article in this blog demonstrated, Buy-to-Let options 1 or 2 were the favourites, and did appear to do so well, not so long ago! So why does this most common of exit strategies not work so well as before?

Well, think abut it this way…In recent years, the Buy-to-Let market in the UK has grown enormously, with the buy-and-hold strategy being the most popular. However, such has been the saturation level of Buy-To-Let in some areas resulting in an over-supply of investment properties and exposing investors with highly-geared portfolios to the inevitable fate of negative cashflow. Indeed, in the good times, capital growth was skyrocketing, rents were increasing for each tenancy renewal, and tenants were not always well treated. The landlord was definitely the king and property investing was so easy.

However, what happened when the market turned the other way? This is where every Buy-To-Let investor must ask himself/herself some very relevant questions such as:

Did you pay retail price when you bought your property?
 What happens if your property is empty for a couple of months?
 And your mortgage interest rates start rising again?
 And you are forced to accept a lower rent in order to tenant your property?

Remember, whatever the reason, you still have to come up with the money to maintain the mortgage payment each month! And worst still, what will you do if you have multiple properties where the above happens?  Despite how easy it all seemed in good times, do you know how to handle things when the market turns the other way? You could be forced to sell due to negative cashflow. In many instances you will lose money instead of breaking even or making a profit, as everyone bails out at the same time as you. You should never live or  believe in negative cashflow. It will give you stress, sleepless nights and fights with your partner. Such times will affect your health and that of your family’s too. This is why Positive Cash Flow Is a Must!

Therefore , exit strategy 3 and 4 are the best ones in the current market. Exit Option 4 using lease options is by far the most viable strategy for 2010 as we are all still very much in a period of  negative growth in the property market. It is interesting to see just how many so called ” traditional BTL or BMV” investors and poperty seminars are all turning to lease options as the saviour of the day! Therefore, it is imperative that every self-respecting property investor today owes it to himself to find out exactly what lease options is, and how to use it as an exit strategy. In the next article, you will learn more on this subject, but in the meantime, please check out the link below if you want to know more on lease options:

 http://www.ukpropertyladder.com/assured-positive-cashflow.

All for now.

Sudeshna Choudhury

 

February 8, 2010

From BMV to Lease Option Deals

Filed under: General — Tags: , , , , , — francis.emery @ 10:37 pm

From Below Market Value to Lease Option Deals

Introduction to a Mandatory Paradigm Shift for Property Investors

The reason why below market value deals were so successful with investors was because it was perceived an easy-to-understand way of making money out of UK residential properties, with minimalistic cash investments.

But in 2010, things are very different. Historically, the mortgage drought that started in mid-2007 in United States reached UK by the begining of 2008  then deteriorated throughout 2009.

The current 2010 situation in the mortgage market is just a mere reflection of the global financial crisis, which I believe, is more a crisis of trust between investments, financial institutions and their regulators rather than a financial crisis per se.

The implications in the UK property market are profound, touching every market players from first time buyers to vendors, from estate agents to letting agents, from mortgage lenders to mortgage brokers, and from property investors to tenants.

Up to very recently, among all market players, ‘smart property investors‘ or sophisticated investors always managed to find ways to pull out deals at 20%, 25%, 30% or even – for those with insider knowledge –  50% below market value. But things are very different as we said. No one knows how the global financial crisis will unfold, despite the media wanting us to believe that a recovery could surprise us any time.

The smart property investor has become a mere mortal man, just like any one else, he is no longer guaranteed to get a mortgage, despite an impeccable credit rating.

No one is guaranteed a mortgage!

The smart property investor due dilligence is no longer around the profitability of a deal but around the ability to get a mortgage or bridging loan for an acquisition or a buy to let re-mortgage to convert equity into cash.

Many good property sourcers or deal packagers have dropped their standards

As if things were not complicated enough, many good property deal sourcers and packagers have dropped their standards. 25% off market value? The market value is guaranted by a RICS valuation? But what does it mean in a falling market? Uncertainty!

But the market never rests, that’s a good things. The newer trends has become to shift from BMV to Lease Options Deals. This is confirmed by the fact that recently a number of property sourcers have started to offer Lease Options Deals.


So if you’re a property investor looking for lease option deals in UK, how do you know your favorite property sourcer or deal packager has maintained his deal quality when shifting from Below Market Value to Lease Options?

If you want to continue making money during this recession/depression, it is important to know answer to this fundamental question. It is important if you are a sophisticated investors, to understand how you could optimise the overall financial performance of your residential property investment portfolio by having the right mix of Buy-to-let versus Lease Options properties.

Grab Our Free Report: How To Make Good Money Shifting  From Below Market Value To Lease Options Deals

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