Patrick Souiljaert

There are two main ways for property investors to help people and make money:

• Buying property Below Market Value (BMV)
• Through Lease Options

Lease Options are all about helping people and solving problems. They don’t require a mortgage or a large deposit.

• Lease Options help motivated sellers, who are having difficulties finding a buyer, to sell their property.
• Lease Options help motivated buyers, who cannot get a mortgage, to purchase a property.

You might think I was slightly mad if I said to you that I am going to:

• Buy a house for £160K, which is currently worth only £144K,
• Sell the house in seven years for £144K – and make £24K profit.

Consider this hypothetical scenario: 

• Adam is moving to Australia and wants to sell his house. He has £160K left to pay on his mortgage but the house is worth £144K in today’s market. Adam’s monthly mortgage payment is £530.
• Bob wants to buy a house. He has got a good job but he cannot get a mortgage.

I make an agreement with Adam to buy his house today for £160K, as follows:

• I take over full responsibility of his house and pay his mortgage and all other costs. And I sell the house in seven years.

I make an agreement with Bob for him to become a tenant buyer for the next seven years:

• Bob rents the house for £1,000 PCM for the next seven years – at which time he has the right to buy the house for £144K.. In the agreement  Bob pays me a £5K start-up fee:
• As a tenant buyer, Bob effectively ‘owns’ the house from day one and has full responsibly for maintaining it.
• However Bob isn’t obligated to buy the house and can walk away at any time.
• If Bob were to walk away I would just need to find another tenant buyer.

 My responsibilities are:

• I pay Adam’s mortgage of £530 PCM.
• I have two legally binding contracts, one with Adam, the other with Bob.
• I pay for the contacts to drawn up by three solicitors (one representing each party). I do so by using part of the £5K start-up fee from Bob.

Hence:

•  I’m getting an income of £1,000 PCM from Bob and pay Adam’s mortgage of £530:
• I overpay the mortgage every month by £400 (giving me £70 cashflow), for the next seven years.
• In seven years time, the outstanding balance on the mortgage will have been reduced to £120K.
• I sell the house to Bob for £144K – leaving me with a profit of £24K.

Everyone wins:

• Adam gets out of negative equity by effectively selling his house for £160K.
• Bob owns his house. On the basis that house prices double every 7 to 10 years, when he purchases the property for £144K in seven years, the price will be way BMV.
• I make money.

Those of reading this who have got ‘What if…’ questions, they should all be covered in the contracts drawn up by the solicitors.

The scenario I have illustrated above is called a ‘Lease Option Sandwich’ – three parties are involved (with the property investor being in the middle).

A straight Lease Option would involve two parties, eg if I bought Adam’s house over seven years and kept it for myself. Or I already owned a house and sold it to Bob over X years.

When ironing out a Lease Option agreement, it is vital you fully appreciate what the seller/tenant buyer would like to get out of it.

As the property investor, you are the one who is proposing the agreement – and it can include virtually anything! 

I believe it was Rick Otton who devised Lease Options, quite a few years ago.

Question: in the scenario above, how much of my own money did I invest?
Answer: £0 – my ROI was infinite.