Lease Options

Are you struggling to sell your property?

Nowadays, when buying property and building a portfolio in the traditional way, one is faced with a several challenges. You don’t always have the capital to invest in the first place. Secondly, the banks will not lend you the money if you are not credit worthy. This raises the question, is there a different way to do things and to invest in property despite these challenges? The answer is, yes.

You can best see this problem by taking a look at the costs involved in a typical traditional

property purchase. For example, if a property sells at R 150 000 in a typical buy to let deal, the costs you rack up includes deposit, transfer fees, agent commission, refurbishing costs. All this could amount to about R 35 000 upfront. That’s a lot of money. You can expect this property to rent for around R 2500 per month.

The second problem is the long timeframe. The process is very slow – it can take anything up to 6 months before transfer goes through and the place ready to market.

But what if there’s a way to get around the downsides of this otherwise great strategy: the long timeframe and high investment costs?

Lease Options

To solve this problem, many investors are increasingly using a little known strategy to maximise returns and reduce risks. It’s called “lease options”.

The global financial crisis of 2008/9 and its aftermath have made lease options all the more appealing because you don’t need to qualify for a bank loan to use them. In fact, you don’t even need lots of cash upfront to invest.

Now, isn’t that the kind of investing strategy that you would like to know more about?

Here’s why lease option investing is so great

Here are some of the benefits of a lease option:

Benefits for buyers

·         No need to apply for a mortgage bond immediately.

·         No need to hustle for a ridiculous discount from the seller.

·         Buy negative or little equity properties and still profit.

·         A huge cash deposit is not required.

·         You can still buy property even with a bad credit record.

Benefits for sellers

·         Get an upfront "option fee" from the incoming buyer, the amount varies depending on the selling price.

·         Get Higher monthly cashflow than a traditional buy-to-let, about 15%.

·         Sell the property much quicker.

·         Tenants will pay above market price rent and won’t miss a payment.

·         Sign up tenant buyers who will do their own repairs.

·         Receive a cash lump sum when the tenant buyer finally takes over ownership.

But for any lease options deal to work, however, it’s important to put a win-win solution on the table for both seller and buyer.

How does it work? How does one go about setting up and using this investment strategy? What risks are involved? What does one need to start with? These are important questions that need to be answered before embarking on this strategy. Happy investing.

The author is a management consultant with over 20 of managerial experience at leading South African corporates.  He can be reached at bertramjc@gmail.com.