LEASE OPTIONS; HOW TO AVOID PAYING THE SOLICITOR’S FEE


Having hopefully read the previous two posts ‘Lease Options’ and ‘Lease Options; How Else You Can Use Them to Your Advantage,’ you’d now have a basic understanding of Lease Options and how they can enable you to become a landlord without even having to officially own any property.  Actually I would even go so far as to say that being a Lease Option landlord is in many ways far safer than being a traditional landlord; for if the contract is written out correctly, it is plausible that if anything should go wrong between you (the investor) the tenant and the seller, you can simply terminate the Lease and step out of the contract, forcing the tenant to have his tenancy non-void and control of the property returns to the seller.


If you have ever used a solicitor before, than I’m sure you’re well aware as to how much their services can cost; especially if you are asking the solicitor to draw up a contract for you and unfortunately a specially trained Lease Option solicitor is no different.  However when forming a Lease Option, there are a few possible scenarios where you may well be able to avoid having to pay a solicitor for his work; or at the very least delay the payment.


So suppose you don’t wish to fork out the money to pay the solicitor, well what options do you have?  Well one option is to have a third party pay the solicitor fees for you.  For example, you could a loan from friends, family or even the bank.  Alternatively one tactic used by many Lease Option investors is to actually get the seller to pay the solicitors fees.  Now you may be thinking that this is a bit immoral, having the seller who is providing you control of her property for certain amount her month.  Yet in reality, if she were to sale her property the ordinary way (through an estate agent) she would have to pay estate agent fees, probably bring in a surveyor to value the property, etc, which in itself would cost far more than the fees for a Lease Option solicitor to draw up a contract.


Alternatively if the seller refuses to pay the solicitors fees, you could always see if the solicitor would be willing to accept payment in the form of future installments from the amount you’d be making each month once a paying tenant has moved into the property.  Yet don’t be surprised if as you are new to the Lease Option business, the solicitor initially turns down the offer of future installments for payment upfront.  As with most other folk, solicitors are not always willing to do something on faith that they will get paid at some distant point in the future.


Ultimately while the finding and creating a Lease Option opportunity with no money down of your own can be hard, if you are flexible and persistent (as well as persuasive) you may well be able find opportunities and become a Lease Option Landlord with very little money of your own.

LEASE OPTIONS; HOW ELSE YOU CAN USE THEM TO YOUR ADVANTAGE


In the previous post ‘Lease Options’ we revealed what a lease option was and the basic dynamics of how you can use Lease Options as a way to earn a living from property.  Fortunately Lease Options come in all shapes and sizes (let’s not forget that a lease option is simply a contract drawn up between seller and investor/buyer on gaining control of a property) and as such, there are a few more techniques you as a would-be landlord can request in the terms of the Lease Option in order to make a profit.


One thing you may want to consider is who receives how much of the initial deposit that the tenant pays on moving into the property.  If seller is motivated enough, you can have it written into the contract that you will take 100% of the deposit as well.  Alternatively you could always split the deposit 50-50.


Furthermore the tenant you bring into the property, do you want him to be just a typical tenant (rents the property for number of months, etc, than leaves at end of tenancy) or the newer ‘Rent-To-Own’ type tenant.  As many people nowadays are struggling to get a mortgage, a rent-to-own tenant is one who pays a specific amount each month (more than typical tenant) with the premise that what they pay per month is deducted from the total price of the house, until nothing is left to own and the property is theirs.  You may well be able to make larger profit with a rent to own tenant than a normal rental tenant.


Alternatively some rent-to-own tenants would prefer to rent the property off you for number of months whilst they get the mortgage together to buy the property outright, in which case you can have an agreement within the option contract that when he does decide to buy the property, the tenant would have to pay another small lump sum to end the rental tenancy and buy the property.  Hence an extra bit of money in your pocket.


When also creating a Lease Option, we should consider the fact that over the time period the option is set for (specifically in the case of years) the value of the property will go up.  As such, who can have right to claim this extra profit should you decide to re-mortgage the property, etc, you the investor, the rent-to-own tenant or the seller?  This is why it is vital to have the support of a legally trained solicitor to assist you in drawing up a Lease Option contract between you and the seller and if done correctly, you may well be able to claim the increased value of the property as your own; which you can then use to buy the seller out of the Lease Option.


For example, let’s say I use a Lease Option for 15 years on a 3 bed property for £250,000.  Now with the right terms of the contract in place, let’s assume than that 13 years later, I discover the value of the property has doubled in price to £500,000.  Well such a case, I can use the extra £250,000 in price to pay off the seller, thereby buying out the seller, terminating the contract and the property now being mine.


In the next post, I will explain how you can avoid paying the last expense of setting up a Lease Option; one which when avoided would mean you haven’t spent a single penny on gaining control of the property (and perhaps ultimately purchasing the property).  This expense was the solicitor’s fee!

LEASE OPTIONS


From the previous post ‘Virtual Property; Low Cost Way to Become a Landlord’ we uncovered how a recent market has boomed for buying property in cyberspace, from the likes of Second Life, etc.  If you would however prefer sticking to making some money as a landlord in the real world but don’t have any capital to get you started, than Lease Optioning could be a route forwards for you.

So what exactly is a Lease Option?  Well you may well have heard of options before in trading, where one can create an option to buy a particular stock, etc, at current price by a set date in the future for small, upfront paid premium.   The logic behind this being that the price of the stock, etc will hopefully go up in value and when it does, you can buy the stock at the stock at the promised price (however much it was when you first purchased it).  For more info on typical options, click here.

Whilst traders have been using options for years now, in the UK investors (some with no capital) have started using options on property.  The principle behind it is that a seller of a property is keen to sale but can’t get the asking price he wishes (or even worse, nobody is interested in the property).  As an investor, you can approach this seller and inquire as to whether he would be interested in leasing out this property to you for number of years (UK law states 21 years is the longest period of time an option contract can be left open for).  Within the lifespan of the option, you have the right to buy the property off the seller at his initial asked price in the process.

In return for leasing his property out, you may well be asked to pay the seller a regular monthly fee (failure of which can simply result in the option expiring and the seller merely regains control of his property).  Now the beauty of Lease Options is that by drawing up the contract properly between you and the seller, you can be allowed to lease the property out to another tenant.  The tenant pays you rent on a monthly basis at higher price than the seller is asking for on a monthly basis.  The difference is what you keep as a profit in the process.

For example, let’s assume a seller is trying to sale her 3 bed house for £250,000, with no particular interest from any buyers.  You come along and having found out the sellers criteria, discover that she doesn't need an upfront payment and happy to receive the full amount over several years.  Now using a solicitor trained up in creating Lease Options, you agree to pay her £500 a month for 10 years, with the option to buy the property off her anytime within the upcoming decade.  You also both agree that you can lease the property out to a third party who will rent the property off you for £800 a month.  Automatically you are making £300 a month from the property you have now leased out.  As the tenant goes to you if there are any issues or problems as well as pays you first, you are now effectively a landlord.

Yet this is not the only way to make money from Lease Options, as we’ll discover in the next post.  Also we will uncover how it is possible to not spend a penny on solicitor’s fees either (please remember that unless a trained solicitor yourself, don’t try and be cheap by creating your own contract between yourself and the seller.  With property, one minor legal loophole or law overlooked could see you in a lot of financial trouble).

VIRTUAL PROPERTY – LOW COST WAY TO BECOME A LANDLORD


For many years financial planners have been advising those of us with excess cash that we should invest it in property – in particular property that we can rent out to tenants for a healthy Cash Flow (see Cash Flow & Capital Gains post for explanation of Cash Flow).  Unfortunately the majority of us don’t have thousands in savings which we can use as a deposit for a buy-to-let property.  As such, we are unlikely to find a financial planner who is going to recommend buying buy-to-let property (to be honest, I wouldn’t take the advice of a typical financial planner serious, as we’ll uncover in upcoming post).

Fortunately it is possible to purchase property for free without having to read books on ‘No Money Down’ deals.  The arrival of the internet has actually brought about a whole new type of property; one which doesn’t require thousands of pounds to buy or create, ‘Virtual Property.’  As you probably gathered, virtual property doesn’t actually exist, well not in the real world; instead this sort of property exists in the realms of cyberspace and in virtual worlds, such as in Second Life, Entropia Universe, etc.

Yet despite its non-existence, a new breed of online gamers are quickly learning that their virtual property can bring them real life earning; believe it or not, there is actually a growing market of folk out there who already have their own characters (known as avatars) in one or more of these worlds and willing pay real life money for their avatars to have their own properties.  As such by buying or creating virtual online property, you can effectively become a virtual landlord, yet receive REAL LIFE MONEY in the process.

To give you a brief idea of how much you can make from being a virtual landlord, in Entropia Universe, a man recently sold a space station he owned for the equivalent of $330,000 (not bad for a few days’ work).  Yet rather than working on building property only to sale it, why not earn monthly passive income merely acquiring virtual property and renting it out for monthly fee.

Yet if you fancy being a landlord in the physical world (instead of virtual) than there is still a way you can get your foot in the door without having to put mortgage down, in Lease Optioning. 

CASH FLOW & CAPITAL GAINS

In the previous post ‘Assets & Liabilities’ we uncovered the difference between an Asset and a Liability; however in regards to Assets there are some which seem to fall into a grey area for whilst they provide you Cash, they don’t necessarily produce Cash Flow (in investors terminology).  For instance, suppose I buy a 100 shares in ABC ltd at 1.20p and a week later, sale the stock for 1.80p.  Were the shares I held in ABC ltd an Asset to me or not?  Well in one sense of the word they were, I received the transactions of the shares (buying and selling), yet in another way they weren’t for to gain any income from the shares, I had to sale them.  For something to be an Asset (as we discovered), it needs to produce income for me on a recurring basis (Passive Income).

To help get around this issue, I have come up with the terms Cash Flow Asset and Capital Gain Asset, which are terms that I use to see if something is an Asset by true definition or is a sort of hybrid Asset, brings in Cash Flow but not true Passive Income

The following are how I define Cash Flow and Capital Gains

CASH FLOW

Money that flows into your pockets (or Bank Account) on a recurring basis, be it monthly or ad hoc.

CAPITAL GAINS

The intrinsic value of something going up or down, hence making a profit by buying low & selling high

On your journey to becoming financially free, while it certainly is possible to wealthy by buying and selling Capital Gain Assets (like trading stocks or flipping properties) but in my opinion, such a route is risky to say the least.  The reason for the risk is that just as easily as you can win, you can also lose and lose big.  Yet with Cash Flow Assets, once you have created or purchased the Asset, you will effectively be paid for months or years to come, freeing you up to invest in other assets.

Now I don’t know about you but I’d by far prefer to become financially free with the least amount of risk and stress, by pursing Cash Flow Assets!