A Killer Investment Strategy: The Three Sources Of Cashflow From
A Killer Investment Strategy: The Three Sources Of Cashflow From A Lease Option Strategy
Once you own an investment property or a piece of investment real estate then you need to make money from it. If you’re not going to sell it on then you would typically rent it out to a tenant. The rent covers the mortgage payments with perhaps a bit left over for repairs and so on but it’s rare for a landlord or property investor to make any significant monthly cashflow.
A solution to this lack of cashflow is to utilise lease options also known as the renttobuy or renttoown strategy.
There are many people who for one reason or another simply cannot get a mortgage. Perhaps they have no credit score as they’ve just come in from abroad. Perhaps they’ve had financial problems in the past. And they’re stuck they’re saving towards a deposit but all the time they’re waiting for a bank to accept them house prices are moving up and away from them.
Now you can offer them a solution!
You take them on as tenants as normal paying rent as normal. However you also sign a lease option with them. This gives them the right but not the obligation to buy the house from you within say two years at a price you fix today.
Since I buy all my investment properties at least a 20 discount I generally fix my lease options at a little over the current open market value of the property. This way I lock in my profit from Day 1 and at the same time hand over most of the capital growth for the next two years to the tenant. I like to spread the wealth whenever I can!
In return they pay you a deposit of 3 5 of the value of the property when they move in plus they pay about 20 on top of the rent every month. In this way they build a deposit with you over the twoyear period making it even easier for them to complete on the purchase in two years time.
Meanwhile your cashflow has gone from virtually nonexistent to amazing! Plus you have tenants who pay on time and love you for helping them out! A true winwin!
That’s the overall concept.
Let’s now break it down into the three ways in which you can profit from a lease option strategy.
1. You agree to sell the property in two years time at today’s market value. Since you bought at well below market value you are immediately locking in your profit.
Specifically let’s say you bought a pound;100000 house for pound;80000 you set the price on the lease option for pound;105000 the extra pound;5000 covers costs and your profit of pound;20000 is locked in.
2. Your renttobuy tenant gives you between 3 and 5 of the agreed price depending on what s/he can afford.
To continue with the example above your renttobuy tenant will pay you between pound;3150 and pound;5250 the day they move in.
3. Each month for two years your tenants will give you 20 on top of the market rent you charge them.
Again using the same example if the market rent is pound;500 a month then you will collect this as normal plus an extra pound;100.
Let’s now fastforward two years. Your tenants are now in a position to apply for a mortgage to buy your house from you. Here’s how it looks for them now…
Agreed Purchase Price: pound;105000
Deposit Paid:
initial deposit: pound;5000
24 x pound;100: pound;2400
Total Deposit: pound;7400
Amount Left owing: pound;97600
Assuming zero growth in capital value over the two years your tenant now only needs to find a 93 mortgage to complete the deal. If the property has increased in value then obviously their loantovalue amount will drop accordingly.
In addition to a lockedin profit a healthy ‘movingin’ deposit and good monthly cashflow from the 20 extra payments there are other benefits to the lease option strategy too.
* Tenants will often take on renovation projects for you as they see it as their home. Instead of paying them for doing the work you simply give them more equity in the property.
* As your tenants move in to their home rather than a rented property they treat it better do repairs and maintenance themselves and hence require virtually no management input.
* There’s a clause in the lease option that gives you the right to terminate the option in the event of any payments being late. Again this drastically reduces your management costs.
You can see now that for good cashflow and ease of management lease options are streets ahead of any ordinary buytolet strategy out there.
Now lease options are relatively new in the UK and it’s unlikely that your local friendly solicitor will know much about them.
You want access to a solicitor who knows all about them and who has the paperwork drawn up already. You also want to learn everything about lease options direct from the man who brought them over from the US in the first place.
To learn more from The LeaseOption Master and for a free 5part minicourse on this superprofitable cashflow strategy simply click here…
http://www.maverickinvestor.com/rent2own
About the writer:nbsp;nbsp;Rob Best is a writer researcher and Maverick Investor. He started investing in stocks in 1978 Forex and commodities in 1985 and property / real estate in 1987. He now helps to run the Maverick Investor resource site at http://www.maverickinvestor.com
For those interested specifically in below market value properties in the UK Rob also helps out at http://www.thepropertyman.co.uk
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