Lease options

Mods

Anyone here ever heard of lease options? I have read recently that it is possible to effectively become a landlord by finding 'motivated sellers' and offering them a deal (known as a lease option) that I think works something like this:

• You (as an investor) approach a property owner and offer to take over their mortgage payments whilst they keep their name on the mortgage.
• A contract is drawn up that gives you an option (but not necessarily the obligation) to buy the property for an agreed amount after a certain period of time has passed.
• The owners agree and vacate the property
• Having assumed control (but not ownership) you are able to rent out the property and collect payments from the tenants
• After the agreed period of time has passed, you may/may not buy the property depending on whether or not the property's market value has risen.

That's roughly how I understand lease options to work. This video explains it better than I have: http://www.youtube.com/watch?v=Q249Gtk37JM


Is there any legitimacy to these deals? Could this actually work or is it actually too good to be true?

eddddy

So according to the vid, you make money because a house owner leases you their house at £312 a month, and you then rent it out at £600 a month.

Why would anyone do that?

Why wouldn't the house owner just rent it out themselves at £600 a month?

(If you had a house that was worth £600 a month, would you lease it to someone at £312 per month, so that they could rent it out at £600 per month?)

Mods

eddddy wrote: »

So according to the vid, you make money because a house owner leases you their house at £312 a month, and you then rent it out at £600 a month.

Why would anyone do that?

Why wouldn't the house owner just rent it out themselves at £600 a month?

(If you had a house that was worth £600 a month, would you lease it to someone at £312 per month, so that they could rent it out at £600 per month?)

Well I'm still trying to get my head around it myself but I think the property owner would have to be invalid bit ofba pickle such as mortgage arrears, negative equity, desperate to move out of the area, etc. That's what I meant by a motivated seller.

eddddy

Mods wrote: »

Well I'm still trying to get my head around it myself but I think the property owner would have to be invalid bit ofba pickle such as mortgage arrears, negative equity, desperate to move out of the area, etc. That's what I meant by a motivated seller.

Yes - but how does that change anything?

A property owner has arrears and negative equity. He has 2 (or more) options:

Option 1) Lease/rent the property to you at £312 per month
Option 2) Tell an EA to rent it out to someone else at £600 per month

Why would he take option 1 instead of option 2?

(I think the assumption is that you have to find stupid and/or vulnerable property owners, who will take option 1 - because they are stupid and/or vulnerable.)



So to be blunt, I think the idea being sold is:

"Pay us money to come on a course to learn how to con stupid/vulnerable people into renting their house to you cheaply."

But ironically, it's the people who pay for the course that are being conned.


The standard questions apply :

If the scheme works, why don't the scheme organisers just do it themselves and make lots of money?
Why do they choose to charge people money to tell them about the scheme instead?

Mods

eddddy wrote: »

Yes - but how does that change anything?

A property owner has arrears and negative equity. He has 2 (or more) options:

Option 1) Lease/rent the property to you at £312 per month
Option 2) Tell an EA to rent it out to someone else at £600 per month

Why would he take option 1 instead of option 2?

(I think the assumption is that you have to find stupid and/or vulnerable property owners, who will take option 1 - because they are stupid and/or vulnerable.)



So to be blunt, I think the idea being sold is:

"Pay us money to come on a course to learn how to con stupid/vulnerable people into renting their house to you cheaply."

But ironically, it's the people who pay for the course that are being conned.


The standard questions apply :

If the scheme works, why don't the scheme organisers just do it themselves and make lots of money?
Why do they choose to charge people money to tell them about the scheme instead?

Good points all round. I have no intention of going on their courses.

I'd say the advantages for the property owner is that 'rent' (where you're paying their mortgage for them) would be guaranteed under contract whilst it wouldn't be if they decide to let it out using an EA. I think it's convenience or security that you would be selling to them.

I'm not saying there is anything legit about lease options but when i heard about it I decided it would be worth exploring safely without committing to anything.

Annisele

Mods wrote: »

• You (as an investor) approach a property owner and offer to take over their mortgage payments whilst they keep their name on the mortgage.
• The owners agree and vacate the property
• Having assumed control (but not ownership) you are able to rent out the property and collect payments from the tenants

I think those three things are mutually incompatible.

If the owners have a standard residential mortgage, then the terms of their mortgage will require them to live in the property themselves, not assign it to anyone else (without their lender's permission), and not let the property.

So, the plan would put the borrower in breach of their mortgage conditions - and worst case, the lender would take possession.

eddddy

Mods wrote: »

I'd say the advantages for the property owner is that 'rent' (where you're paying their mortgage for them) would be guaranteed under contract whilst it wouldn't be if they decide to let it out using an EA. I think it's convenience or security that you would be selling to them.

No!

The EA would find a tenant. The tenant would sign an AST (assured shorthold tenancy). That is a legal contract.

Or the 'investor' signs a lease. That is a legal contract.

The tenant may breach the contract by not paying the property owner his rent, or the 'investor' may breach the contract by not paying the property owner his rent.

Neither approach is 'guaranteed' and neither approach is necessarily safer than the other.


(Or are suggesting that you lie to the property owner and say your scheme is guaranteed? And the property owner is stupid and believes you?

Internet 'get rich quick' schemes always seem to be based on finding stupid people who will be prepared to do stupid things - in order for you to make your money.

As I said previously, would you be stupid enough to rent your £600 per month house out at £312 per month. If not, why do you think other people would be that stupid?)