Lease Options or EDC (Exchange with Delayed Completion) are a perfect solution to the problem of building a property portfolio without access to mortgage facilities. Many investors today cannot get additional Buy to Let mortgages as the Banks are restricting the volume any one investor can have with them. If a joint venture is not an option, then maybe Lease Options are.
A Lease Option is a long term lease arrangement, generally of between 5 and 15 years, where a monthly lease payment is made to the seller’s mortgage lender or to the seller. The option to buy or exchange contracts allows for the eventual completion of the purchase, at a date within the agreement timescale, or earlier at the buyer’s discretion.
The benefit to the seller is that they can move away, knowing that the mortgage payments are taken care of and that they have a firm commitment to purchase from the buyer. Money may change hands at the beginning of the transaction and/or at completion or, if there is no equity, then not at all.
The benefit to the investor would be that they could rent out the property for more than the monthly mortgage payment that they have taken over, the price of the property is agreed up front at potentially higher than today’s market price. Should the house prices not increase significantly by the time the option period is reached, then the option is simply extended.
Typical costs for a lease option deal:
- Reservation Fee payable up front to reserve the deal
- Packaging Fee payable within 48 hours of reservation
- Fees of £600 for vendor’s solicitor
It is the investor’s choice as to whether they use a solicitor for this deal. We can provide all the paperwork that is required.
An average total cost for this type of deal is less than £4000 and provides an income generating asset with increasing equity, particularly if you are taking over a capital repayment mortgage, which is rare as the rental coverage would probably fail to return an income.
How do I exercise my option agreement?
As part of the process, you will have arranged a Power of Attorney so that you can exercise your option should you have lost contact with the seller.
Where might I find a tenant buyer?
There are a number of websites that focus on tenant buyers. If we can help you, we will.
I have not had to look after tenants before, can you help?
We can help you with advice about your obligations as a landlord or we could manage your property for you to get the best out of your investment, including the placement of a tenant buyer if possible.