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
