If you're going to be investing property using lease options then you will require some knowledge as to how to what you should do and what you should not do when it comes to lease option paperwork. If you prepare to do your deals in the correct way at the start then there is no reason why lease options can't work successfully for you.
What you should do
1) When putting your lease option agreement together, it is important to use a qualified solicitor. The reason for this is because conventional conveyancer solicitor will not be familiar with option agreements and therefore encourage you not to purchase a property using a lease option. This is why you should seek to use a solicitor with previous experience in lease option transactions. A wise thing to do is to contact your local solicitors specialising in commercial property. Lease options are common in land transactions in the UK and if you pick a solicitor specialising in commercial property he will be able to put together all of the lease option paperwork for you and ensure you complete on the purchase swiftly.
2) Ensure that you can rent the property for higher rental than you will be paying the seller each month. To make sure you get your figures right the best thing to do is to contact letting agents to get an idea of what the property will rent for. Before you start adding up your monthly cash flow, make sure you factor your payments to the seller, plus expenses such as insurance, service charges, ground rent etc
3) Does the seller look like he will abide by the lease option? You want to make sure the seller is not the sort of person to make it difficult for you to exercise your option in the future. Lease options are legally binding and so long as the seller has sought legal advice you are protected but why go through the hassle of a long drawn out court battle? There's no real way you can know, best way is to trust your gut instinct.
4) Make sure that you are happy with your option agreement and that each party including the seller, yourself and tenant buyer (if doing a sandwich lease option) is happy and clear with their responsibilities. For example, who pays for maintenance and by how much, this will ensure that there is no confusion in the future.
What you should NOT do
When doing lease option transactions the points below are those that you will want to avoid:
1) If the seller is being repossessed and you will be stopping the repossession by paying off his arrears you want to make sure that your option has been signed and a restriction has been placed at land registry using a RX1 document. This will register your interest on the property and stop the seller selling the property to another investor.
2) Do not promise the seller to buy his property in five years' time and then half way through the term hand back the keys to the seller. It is not ethical to do this nor is it fair on the seller. If you're not sure that you are going to buy the property then it's important to make this clear to the seller.
3) Do not take on a property if the property does not cash flow at least £175-£200 at 6%. Interest rates are predicted to rise from 0.5% up to 5%+ over the next few years. Only take an option on the property if it still cash flows well at 6%+ otherwise you could find your profits being squeezed out and potentially leave you in a cash flow negative situation.
Your role as a property investor is to seek out the property deals that will put cash in your pockets. If you follow the advice above then you have every chance of being successful in property investing using lease options.
Amandeep Sandhu is a UK (London based) property investor specialising in acquiring property using no money down strategies. Amandeep has written a home study programme titled "Secrets of Investing in Property without Money, Mortgages and Risk". To find out how you can learn the secrets of investing in property without money, mortgages and risk, visit http://www.leaseoptionprofits.co.uk
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