OS Residential Properties: Bespoke Property Sourcing Agents London, Cambridge
Purchase lease options sourcing specialist: In the realm of property investment, lease options have emerged as a common topic of discussion. But what exactly are they, how do they operate, why opt for them, and why isn’t everyone leveraging this strategy? This article delves deep into lease options for property investment, providing you with the insights needed to determine if it aligns with your goals.
What is a Purchase Lease Option (PLO)?
A purchase lease option is a legally binding agreement that grants you control over a property, enabling you to rent it out with the potential to purchase it in the future. While it may seem complex at first, it really boils down to being a rather straightforward concept.
In essence, you cover the property owner’s monthly payments and often agree on a future purchase at today’s price. In return, you gain control of the property and can rent it out to tenants. This arrangement mirrors a car lease, involving a monthly payment, agreement duration, and possibly an upfront payment akin to a deposit.
The upfront payment is pivotal, as it solidifies the legality of the agreement. It can be as minimal as agreed upon, but it must be in place for the agreement to take effect.
Why Choose a Lease Option?
From a landlord’s perspective, a property lease option presents an appealing opportunity. It allows you to strike a deal with the property owner, covering their mortgage while adding value to the property and renting it out at the true market price, resulting in a profit.
But why would a property owner agree to this when they could potentially rent it out themselves? Often, property owners in negative equity, landlords with tired properties who don’t want to spend any money to bring it up to standard, or those seeking to transition from the property find this arrangement advantageous. It also provides a means for owners to have their property’s mortgage covered without enduring financial strain or hassle.
Structuring a PLO
For an investor, the key to a successful deal lies in ensuring it yields a profit. You must structure the deal in a way that satisfies the property owner and secures your own financial gain.
Begin by assessing the property’s actual value. Then, determine the rental rates of comparable properties in the vicinity and the owner’s overall mortgage expenses.
For example, consider a property valued at £300k, Now, let’s calculate the potential gains:
1. Monthly Cash Flow:
Rental Income: £1,500
Mortgage Payment: £900
Cash Flow = Rental Income – Mortgage Payment = £1,500 – £900 = £600
3. Total Cash Flow Over 10 Years:
Annual Cash Flow x 10
£7,200 x 10 = £72,000
Profit = Total Cash Flow + (Sale Price – Total Investment) = £72,000 + (£300,000 – £299,999) = £72,000 + £1 = £72,001
Keep in mind that this is a simplified calculation and does not take into account factors like property appreciation, maintenance costs, taxes, or other potential expenses. It’s important to consider all aspects before making any real estate investment.
2. Annual Cash Flow:
Monthly Cash Flow x 12
£600 x 12 = £7,200
4. Total Profit at the End of 10 Years:
Purchase Price: £300,000
Minus Option Fee: £1
Total Investment = Purchase Price – Option Fee = £300,000 – £1 = £299,999
Identifying Lease Option Opportunities
Securing a property through a lease option requires a specific set of circumstances that align with both the owner’s and the investor’s interests. These opportunities are not typically found on the open market or at local estate agencies; they require expert property sourcing know-how.
Explore the Potential of Lease Options in Your Property Portfolio.
Discover the potential of a Purchase Lease Option as an investment strategy with OS Residential Properties. We are your dedicated purchase lease options sourcing agents, offering expert guidance and tailored lease option solutions for UK and international property investors.
