Lease Options for Landlords/Investors
A lease option is simply a long term agreement usually between 3 Ė 20 years. Where a monthly lease payment is made to the sellers mortgage lender or to the seller to buy or exchange contract, anytime, within the agreement timescale. This can be an ideal scenario for the vendor who doesnít wish to take on their property commitments.
A lease option works best if you need to sell and are unable to do so because you have little or no equity. It would also assist you in moving forward if you didnít need a large lump sum of cash, immediately, to move on either because you were moving abroad and wanted someone to control and manage the property while you were gone or because you didnít want to deal with tenants or manage a property altogether. You the seller may also be interested in looking at a lease option if you wanted to secure or pre-determine a price to sell the property at a future time period. The price agreed is normally close to current market conditions regardless of the state of the market in the future. A lease option can work were you are in mortgage arrears and are facing repossession. And lastly it can appeal to a Landlord who own(s) one or a number of BTL properties wanting some protection against the value of the property going down
|Purchase Price 2007
|Loan 15% deposit
|Price Agreed in 5yrs
|Market in 5yrs
Say a Landlord bought a BTL property back at the height of the market for £230,000.
The deposit for the mortgage was 15% and the mortgage repayments were £855 fixed for 5yrs. Then the credit crunch hit him in 2008 and the value of his property fell by 20% putting him in negative equity. The mortgage repayments and other costs i.e. service charge, ground rent, letting agents fee and the possibility of void periods are making this property more of a liability then an asset. We can find solutions to improve his predicament by agreeing terms to provide win-win solution. At least this way he can have a tenant in the property throughout the tenure of the agreement and potentially he has a buyer. His loan is paid off, repossession is staved off and thereís even a profit to be had of £14,500.