How to Convert a Lead to a Lease Option for Optimum Benefits
There are quite a lot of landlords feeling a bit uncertain about the future right now, unsure of what the full impact of Brexit will be. So this obviously influences different aspects of the property market and particularly where some landlords may be thinking about selling in the near future. A lot of people are re-assessing their options as they don’t want to be caught out if the rental market crashes.
For property sourcers, this can be a bit challenging if you’re not used to this scenario but it is probably going to become more common. At Goliath Property Solutions, we have a tried and tested method that enables us to convert a lease option and leverage multiple benefits for us, whilst also giving the landlord some security.
We agree a lease option before we take on a rent-to-rent. You might wonder what we get from doing this, so we will tell you. You have more control and security, in terms of the purchase price. So you are going to see a backend gain, as well as a during the term gain through cashflow. Another big benefit is that the landlord may be more included to do a better quality of refurb than they would for a rent-to-rent.
So it all looks good from our point of view but obviously you have to negotiate with the landlord and know just how to pitch this kind of deal. The best way to do this is to explain that you are looking for a rent-to-buy agreement, whereby you want to rent in the short-term and buy in the future. Tell them you want to refurbish but need to cover those funds by securing the fact that you will buy the property.
The agreement that you are looking for is a lease with options. The landlord will be happy because you are solving their problem by securing an agreement that you will buy from them at the agreed point. The biggest challenge you will probably come to is agreeing the purchase price. You wouldn’t expect much fluctuation in prices over the next year or so but make sure that the numbers work in terms of your future purchase price. You’re going to have the cashflow coming in the short-term and need to ensure that the purchase price is still below market value, to make a backend gain.
What can help is agreeing a longer term with the landlord, of say five or even ten years. And then to protect both parties, we incorporate an equity share. So if the property goes up in value, the landlord is going to get something at the end and have their headache taken away from them straight away.
This method also enables you to get more deals. We use somewhere between 10% and 25% equity share as an indication, knowing that we will get between 75% and 90% of the equity in the future.
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