UK Investment Property

How to find lease-option properties in the UK

Lease options are powerful tools, but if you can’t find the sellers willing to work with you, and accept your option offer, you won’t benefit from them.

How can you find sellers willing to accept your option offer? What is the key? Please read on to find out exactly how you can do just that.

Motivated sellers and moths

Why moths are drawn to a flame is a mystery, but drawn they are.  A light in the night can attract them from 70 meters away.  Once trapped, the moth can circle for hours, working hard but getting nowhere.  More important things like feeding, pollinating plants, or just enjoying life become secondary.  Freedom comes when day breaks or the flame dies.

Motivated sellers are similar.  What was once appealing and attractive has now become a trap.  The emotional cost and energy spent can be huge and they need to move on.

Motivated sellers – the power of emotion

Emotion is the mother of motivation, not logic.  A situation which has become emotionally charged and draining needs resolving.  A Seller is motivated strongly when uncertainty or the fear of being trapped or unable to cope, or simply the desire to move on, becomes overpowering.  “Motivated” means the mind of the person you are talking to right now is full of how to sell the house. They need peace of mind, certainty and freedom.  Lease Options are brilliant for giving that, allowing the homeowner to start enjoying life again.

Aim to help trapped sellers move on

Motivated sellers will be attracted to your solution and away from the flame, and do not need to be manipulated, persuaded or convinced. Lease options are a breath of fresh air, powerful enough to blow a flame away.

Situations in which lease options really shine

There are various situations which cause motivated sellers to move on, but here are the four most important ones. As you consider them, think about those you know who might benefit from a lease option solution.

1.  Financial difficulties

The stress created by the struggle to make ends meet, and the threat of repossession is enormous.  Many sellers I talk to have difficulty covering the mortgage in the face of job loss, wage cuts or illness. They feel tied to a place which is stealing their life away.  A house bought on emotion by those who could never really afford it quickly becomes insatiable in a falling market, like a cuckoo in a sparrow’s nest.
Many have been burnt by a deal that initially looked brilliant when struck by a generous lender.  People get tired, so tired, they just want to walk away.  I like to point out that they can walk away… and keep their credit clean, or have it improved! The question – “Let’s imagine I’m able to help…  would you be willing to sell the house for what you owe?” is often all that’s needed to get started.

Motivated seller case study – financial difficulties and a lease option solution

Michael and Julie were highly motivated, having decided to walk away from their 3 bed semi in a good area of Newton. They had already found a smaller house to rent. Meeting monthly payments of almost £1,000 was exhausting. They could think of little else, sleeping was difficult. They were frustrated after six months’ of pointless effort to sell the house.

Use line ads in local papers

They responded to a simple line ad placed in the local paper.  Initially they considered switching to an interest only mortgage product, getting consent to let and using the rent themselves to cover the mortgage until they could sell. About 4 weeks later they called again, asking for the property to be taken off their hands. They were simply not able or willing to cope with the trouble of finding and caring for tenants.

The perfect option solution

A long term lease option to buy at £93,000 was agreed. The sellers were willing to cover payments on a second charge which would then be cleared before the lease option was exercised. A monthly contribution up to a maximum of towards the mortgage was agreed. Two days after they moved on, a family moved in, paying a healthy rent which resulted in a comfortable margin. The sellers are much better off financially. They have peace of mind and were able to avoid repossession.

2. Splitting up and lease options

Relationship breakdown is painful.  It can be expensive too.  People need closure.  Trapped in a space filled with negative emotion and surrounded with triggers for painful memories, selling and moving out becomes a priority, a fire not a flame.  Often it’s too expensive for one person to cover the costs of running a family home, adding another burning issue to the emotional one.

Relationship breakdown and the perfect lease option solution

Natalie and her ex-partner John had remortgaged and invested heavily in their 2 bed end terrace in County Durham.  Animosity and frustration got temperatures rising; they both wanted and needed closure. Natalie had been offered housing from the local authority and wanted to move out yesterday. Unable to sell for what was owed, they felt trapped, caught in a downward spiral.

A 60 month Lease Option, with a modest amount paid to John to allow him to move on, was agreed. By waiting at least twenty-four months before buying a hefty early repayment charge is avoided, and more money will go to the seller on completion than would otherwise have been the case.

So we have discussed two of the four highly motivational situations sellers find themselves in, situations which easily become emotionally charged.

History of lease options

Lease options in the UK residential market are a relatively new phenomenon. They have been used extensively in the US and Australia since the 1970s.

An option is a financial tool used extensively in financial markets. It allows the holder of the option to buy or sell a property at a fixed price (the exercise price) agreed in advance at any time during a pre-agreed future period (the option period). The purchase or sales price and the length of the option period are agreed at the time the option is created.

In the UK many residential investors have been using lease options to secure an option to purchase a property and then generating a regular income by leasing it back to the original owners. This gives the buyer the certainty of a pre-agreed purchase price along with a guaranteed income.

The purchaser of the lease option pays the seller for the option. This option can be then exercised in the future by the option holder or even sold on to a third party at a profit. The price paid for the option can be nominal e.g. as little as pound; or can be many thousands of pounds depending on the price agreed for the underlying investment property.

Lease options warnings

My advice would be that investors need to tread very carefully & I would advise against shelling out large amounts of cash up front on potential leads. That said, landlords and property investors with access to potential properties and motivated sellers may be able to capitalise on the opportunities provided by this type of new financial instrument.

The reality is that lease options are totally unregulated. You are swimming with the sharks if you go down this route and also there are many who would argue that quite often they are used to exploit vulnerable people who happen to be homeowners by opportunistic individuals who don’t have a great moral compass. It’s worth being aware that both the Financial Conduct Authority warns against lease options, as does the Council of Mortgage Lenders.

The lease options are often promoted by a middle man who hopes to profit by taking a cut of the option fee rent and option fee. These middle men frequently promote lease options as a way of being able to buy a property for a pound. They are also often intertwined with Lease Option gurus who will tell you….sorry sell you the inside knowledge of how lease options work and lease option strategies which they claim will enable you the investor to make lots of money. Unfortunately, this profit is quite often at the cost of vulnerable homeowners that are in financial difficulty. However, morals aside there I’m sure is money to be made but by who is another matter.

The main risk to anybody selling the option and entering into a lease option is that the name on the mortgage deed does not alter so that they are still liable for paying the mortgage. If the option holder fails to pay the mortgage then the original owners will still be liable to pay the accumulated debt. The owners then have little or no mechanisms to reclaim their money. This means that unwary sellers often have more to loose from lease options and particularly in a rising housing market where they could be contractually bound to sell a house for less than it is ultimately worth. The holder of the option on the other hand can always walk away from the purchase if house prices fall or fail to rise sufficiently to make a profit.

You’d be forgiven for thinking and wondering how best to deal with motivated sellers who find themselves in similar situations. Our home-study course has helped many investors do just that, and enjoy huge success with lease options, and if we can help you have similar success, we will be delighted.

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