Over the last couple of years, I have seen an increasing interest and
acceptance in using Option Agreements and their various permutations
on residential property.

Many of us will have heard of Rick Otton and David Lee and
benefited from their excellent training manuals and events,
but how many of us can go out tomorrow and generate serious
income from Option Agreements?

Option Agreements are instruments that a creative, educated
and motivated investor can use to profit massively in any
market. It’s a matter of positioning yourself in the flow of
information and the flow of money. I hope this article helps you
to profit from Options and allows you to assist vendors whom
you otherwise may have struggled to help.

It is just my opinion, interpretation and experience, please seek
your own legal advise and counsel before committing too much
time and money (Best to speak with Paul at MS Law, also
featured in this magazine.)

What are Option Agreements?

Option Agreements are a contractual obligation entered into by
one party in exchange for a consideration sum, which allows the
other party the option, but not the obligation, to exercise their
right over an asset that the other party has.
Examples include:

A simple Option to Buy property. I had offered to buy
a property for £80,000 which needed a little tidying
up before it would be mortgageable. After works it
would survey at £125,000. The vendor granted us an
option to buy the property at 80k in exchange for the
sum of £500. We were then secure in our position to
invest in the works needed and simply assigned our
option to another buyer and banked 10k profit for
sitting in the middle, in the flow of money.

A friend of mine saw some old warehouses on the
boundary of a canal. It was a simple process to pay
each warehouse owner a £1,000 consideration for
the 2 year option to buy their property at the full
pre-agreed market value. Once all the options were in
place, the option holder applied for planning
permission to demolish this entire eyesore and
build apartments and townhouses on the bank of the
canal. Once planning was granted, my friend just sold
the options, packaged together with planning and
banked a clear million profit for sitting in the middle,
in the flow of money.

A distressed vendor contacted me with unaffordable
mortgage payments and geared to 82% of today’s
market value. I explained that we wouldn’t be able to
buy their home personally but if they are planning to
sell and move into rental accommodation, I may be
able to help them achieve a sale. I took an option to
buy the property at a few thousand above the amount
of their debt and paid them £1,000 which they agreed
to spend on decorating materials. They did all the
work themselves and then we recently sold the property
together through an Estate Agent for 92% of
Market Value. They were delighted to be free of their
unsaleable home and I banked around 6% clear
profit for sitting in the middle, in the flow of money.

What are Lease Option Agreements?

A Lease Option has the additional benefits
to both parties of a Lease for the
lifetime of the option. This lease can be as
simple as a residential AST or could have
similar aspects to a commercial FRI (Full
repairing and insuring) lease.

A typical example would include a deal
where we took on a long term lease option on a property that had
previously caused the reluctant landlord much personal stress. He
had a small monthly mortgage payment, little equity and gladly
agreed to a long term lease of £525pcm, I subsequently let the
property to an appreciative LHA family and achieve £775pcm.

As integral part of the lease option is the option to buy. In this
case, we have the assignable right to buy this property at around
2006 prices anytime in the next 6 years. It is likely therefore that
we will be able to exercise our right in the future and achieve a No
Money Down deal or simply sell the property and realise the
difference between the option price and the achieved sale price.
The vendor paid MSLaw’s legal bill for drafting the Lease Options
and Power of Attorney and we had one month free to give us time
to let the property.

This case study demonstrates that there are workable solutions
to help vendors who do not have the ability or willingness to sell
significantly Below Market Value At the same time you can place
self-financing assets in your portfolio without using any of your
own money.

What is Rent to Own?

Rent to Own is where you sub lease your lease option to another
person, usually termed a TENANT BUYER. The Tenant Buyer pays
a higher option fee to you, a higher monthly lease and a higher
option price, thus you profit in 3 different ways.
Sorry if this is a brief summary, I have run out of space, please ask
questions and discuss this with me and my property friends on
Parmdeep’s forum www.tycoons-forum.com

In total support,
Phil (I’ve got a friend) Martin

This article is taken from the fantastic ‘Your Property Network’ magazine - the fastest growing property magazine in the UK. To get your FREE 90 day trial of Your Property Network, click here.