The expressions “Purchase Option” “Lease Option,” and “Sandwich Option” are set to become familiar to investors, landlords and potential home-owners as the global credit crisis continues. Options are versatile and powerful legal instruments which are changing the way residential property is bought, held and sold in the UK.

Put simply, Options are written agreements that give the holder choice or freedom. Depending on the wording in the document, the Owner gives exclusive freedom to buy, use or sell the Property, or a combination of these freedoms. If the Buyer chooses to buy whilst the Option is in place, the Seller must sell. That is the essence of an Option.

There are six essential ingredients of Option Agreements:

• a willing seller;
• a written document;
• a specified period of time;
• an option fee;
• a purchase price; and
• a willing buyer.

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Property Options fall broadly into three categories;

• A Purchase Option is often short-term and grants the holder the freedom to buy the property at an agreed price within a specified period of time.

• A Lease Option is a Purchase Option with the added freedom to lease or use the property in the meantime
A property owner may grant a Lease Option to a tenant buyer, (a tenant who also has an Option to Buy) allowing them time to save a deposit, arrange finance, add value or wait for the property to appreciate. The tenant buyer can choose the best time to “exercise the option”. Serving notice in this way obligates him to complete the purchase, usually with a traditional mortgage. This is known as ‘Rent to Own’.

• A Double Lease Option (Sandwich Option) amounts to two Lease Option agreements running at the same time. The property owner grants an investor a Lease Option and the investor grants a second Option to a tenant buyer. This effectively means the investor can control property and even sell it without owning it.

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Property Options in Control

Instead of increasing his or her personal debt and liability, option holders who take control of property before it is bought will simply make a regular payment to the Seller or pay the Mortgagees direct on the Owner’s behalf, effectively assuming the existing finance.

Investors can have the satisfaction of helping those in need; either those who need to be free of a property which has now become a liability due to relocation, relationship breakdown and other pressing reasons; or those who are forced to make new housing arrangements because they cannot maintain mortgage repayments themselves.

Options are not without risk – but the risk is generally limited to the option fee paid and any costs incurred during the option period. In many cases Options can create cash-flow, since the monthly payments to the Seller or the Mortgagee are usually lower than payments taken as rent. If property prices increase, the Option Holder stands to benefit.

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Property Options in Practice

Option agreements can provide relief for homeowners in many situations. Take Ms D and her partner. They own a two-bed semi with a conservatory and well kept gardens in a good part of County Durham but had moved 40 miles away to settle in a rural location. They were unable to sell the house. Concerned about vandals and burglars their quality of life was suffering. Unwilling to become landlords, they were paying £490 a month for an empty house.

Rather than allowing the situation to spiral out of control, they granted a 48 month Lease Option with the purchase price set at £97,000; less than the marketed sale price. The option holder contributes £300 a month, which covers the interest on the mortgage. There is an excellent tenant caring for the property. The investor benefits from £120 profit a month.

The option holder intends to add the property to his portfolio when the market recovers. If it does not he can negotiate an extension with the owner, or simply allow the option to lapse or expire. In the case of non-extension the property will be returned to the Owner in excellent condition. The investor will have benefitted from the cashflow but will sacrifice the cost of the option plus any expenses incurred. If the market moves up, he will be able to buy an outstanding property at a considerable discount.

Landlords looking to exit the market can lease option their property to another investor, effectively attaining instant relief and freedom from an investment which was draining them.

Rent to own goes a step further. It is a simple arrangement allowing a tenant to live in the property, paying rent in the usual way. The main difference is that the tenant has a legal document giving him, or her, the right to buy the house within an agreed time period at a set price. Tenant Buyers tend to be people who can’t get a mortgage immediately, or don’t yet have the needed deposit, but have a strong prospect of securing finance in the future. The money paid when they move in, together with the monthly instalments, goes towards creating a sizeable deposit.

Imagine you own an investment property which owes you £100,000 and the value now is closer to £85,000. With an option you can set the future purchase price (to be paid within, say, 36 months) at £100,000. When your tenant buyer moves in you collect an Option Fee of 3-5 per cent of the agreed purchase price; collect market rent and monthly instalments of up to 20 per cent of the rent. When the Tenant Buyer decides to exercise her Option and buy, the Option Fee and monthly instalments become the purchase deposit.

Selling to a tenant-buyer in this way has many benefits, not least of which is the Option Fee paid when the tenant-buyer moves in and the ongoing rental and instalments. Late payments and void periods are extremely rare.

The responsibility for day to day maintenance and improving the property lies with the future buyer who takes pride in his home and can add value to it. This home-owner mindset safeguards the investor’s cash-flow and frees him to focus on other aspects of his business. Giving back to the community by helping local families own good homes is rewarding.

Option Agreements are changing the way many are buying and selling property in the UK. They can be used to control a substantial portfolio without the need for personal mortgage debt or liability. Hard pressed landlords can re-organise their finances and transform portfolios. Through Rent to Own, Property Options are opening doors for potential home-owners when finance is not readily available.

In short, these simple yet powerful strategies may well be an option you can’t refuse.

www.PropertyOptionExpert.co.uk is an online learning resource centre for landlords and investors who wish explore the possibilities offered by property options. To contact Mark Jackson, email info@PropertyOptionExpert.co.uk

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Do you need a Property Options business blueprint which you can self-implement immediately?
You need

One Day Property Options Workshop

Saturday, April 10, 2010
8:30 AM - 5:30 PM

The Crowne Plaza
West Drayton, Greater London UB7 9NA

You will come out of this jam-packed workshop with:

*The confidence to use the tools to go out and create win-win deals Today..Yes, Really!

*Learn Linguistic techniques that will build instant trust and rapport with vendors and tenant buyers alike!

Here is just a small sample of what else you will learn:

*Residential Property Options – Learn the essential elements needed to make up an Option

*Practical application of Option strategies.

*Examine real life case studies of how Options have worked in many different scenarios

*Understand how to effectively “Joint Venture with Time” and turn a toxic asset into a healthy investment.

*Acquire the secrets of "Moth Attractor Marketing"

*Finding motivated sellers – secrets revealed

*Understand the specific types of vendors that are ideal for option deals

*How to build rapport through telephone calls, and develop trust before you even meet the vendor

*Find out how to explain options effectively

*Discover a step by step approach to finding tenant-buyers

*Putting it together – to benefit everyone

*Get the legal bits – the fun part of the seminar!!!

Over the course of the day, you will learn exactly what you need to do, step-by-step, to go out and start finding your own Option Deals using Little or No money of your own!

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