What Are Lease Options?

Investors have for many years been using Lease Options as a means to buy property or to gain the same benefits of buying property without physical ownership for many years. This is a phenomenon that has been popular in the States for many years and over the last 12 months has become much more popular in the UK with the tightening of credit which has restricted many want-to-be investors from buying.

So what are lease options?

In simple terms, they are tools which allow investors to creatively take advantage of benefits such as rental income, capital growth and / or equity. Lease options come in varied forms and many are unique to the situation surrounding the property in question.

For example, an investor may have a lease option drawn up with a seller allowing the investor to sell the property in question for £70,000 and profit from anything above and beyond the agreed £70,000. Result? Investor has a large incentive to sell the property for more than £70,000 and can profit from the sale without ever taking ownership of the property. In this occasion, the investor would usually pay the vendor a fee to show their commitment to the sale and incentivise the seller to enter into the option.

Another example of a lease option could be an investor taking an option to buy a house at a pre-agreed price at some point in the future, in exchange for subsidising the owner’s mortgage until they exercise the option and buy the house. Again, the owner benefits from reduced mortgage payments and the investor can benefit from capital growth without taking on ownership. If the market crashes and the property goes down in value, the investor would have lost the money they used to subsidise the mortgage but can walk away without making a capital loss.

These are just two simple examples – lease options can be as intricate and complex as their creator desires. The possibilities with lease options are almost infinite in their detail. So lease options are a creative way of benefitting from the perks of investing in property, often without the need to obtain a mortgage or finance. There are drawbacks involved and any investor looking to utilise lease options should seek the advice of a solicitor who is experienced in the field before attempting to enter in one, but many investors find the benefits on offer are worthwhile.

 

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