How to Find Purchase Options in the UK

A Purchase Option is where you've got the right to buy something in the future. You're not going to buy it now; you're going to buy it in the future. Why might you want to do that? Well, let's say you find a property that maybe you want to get planning permission to change that property. Let's say you're looking for a house that could be converted into an HMO, a House of Multiple Occupation. That's where you take the house and rent out individual rooms to students or young professionals, and you do that because the collective rent you get is far more than you get by just renting out the house to maybe a family or to a couple. So HMO's are a great strategy, but in certain areas, they have what's called Article Four. This means if you want to turn a normal house into an HMO, you need to get planning permission. So there's a risk.

If you buy a house and want to turn it into an HMO, you might not be able to get planning if you need it. So that's a very risky thing to do. So instead, you could agree with the owner that you want to buy the house, but you need to get planning permission first, so you secure the purchase on a Purchase Option. You then go and get the planning permission. Once that comes through, you buy the property. If you don't get the planning permission, you don't have to buy, and you've not caused yourself a real problem. So that's a great way of using a Purchase Option.

The other way is we can actually use a Purchase Option to buy a property at a cash price, even though we're going to get a mortgage on it. So what do I mean by this? Well, very often you might see an Estate Agent advertise a property for sale as a cash-only purchase. Why do they do that? Well, it means that that property is very difficult to get a mortgage on, or may be impossible to get a mortgage. It could be for a number of reasons.

The first reason is maybe the property is just not mortgageable. If the property doesn't have a kitchen or it doesn't have a bathroom, it means it's not really habitable, and so you can't get a mortgage on it. Or maybe a property has a structural issue. Maybe it's got subsidence, where it's actually sinking into the ground. That's a serious problem. Most mortgage companies will not lend on that. Or perhaps you've got a property where there's a very short Lease. It's a Lease-Hold property. There might be 70 years or less on the Lease. Again, mortgage companies will not give you a mortgage to buy that property.

In these three circumstances, because you can't get a mortgage, the seller has to find a Cash Buyer. Now, obviously, there are less Cash Buyers in the market than there are people who are going to get mortgages. So because there are less buyers, the property sells for a lower price, normally, much, much lower.

But here's the trick. You see, if you secure a Purchase option on that price, you can agree to buy it based on a cash price because it can't get a mortgage. But if you have a long enough period, six or 12 months, you can actually fix the problem on the property. So let's say it's not habitable because it doesn't have a kitchen, a bathroom. You can get a kitchen, a bathroom put in, which means it's suddenly habitable. This means you can get a mortgage, which increases the value. Even if there's subsidence, there's a problem, the house is sinking into the ground, that can be fixed. You need to get builders who know how to do it. You can get a certificate to say it's been done properly. Then you can get a mortgage on the house.

Again, the value of the property will come up. Or even if you've got a short Lease, the current owner can get the freeholder to extend the Lease. They'll need to pay to do that. You might put the money in through the solicitor, get the lease extended; once it's been extended to maybe 125 or 150 years, the property is mortgageable again, but you get to buy the cash price. So therefore you can buy at a cash price even though you're buying with a mortgage by getting a Purchase Option.

So hopefully, you can see that a Purchase Option is a very powerful tool you can use to control property. So how do you find these properties? Well, one thing you could do is go and look at your local estate agent and look online to see if they've got any properties that say, "Cash only." In fact, you can do a Google search for "cash only purchase" or "cash only sale" and see what properties come up. Or speak directly to your local estate agent and say, "Have you got any properties that are listed as cash only," and then ask them why they're cash only, and if it meets one of those three circumstances. You might be able to do a Purchase Option on that property.

Because that seller is not going to have people queuing up ready to buy that property. They've got a problem, and they want to get rid of it, and you can come and help them fix that problem. So "Have you got any properties that are Cash Only?" That's a great question to ask.

The other question, you can ask an estate agent to find a Purchase Lease Option. A Purchase Lease Option is very similar to a Purchase Option. You've got the right to buy it at sometime in the future at a price you set now, but you also pay a monthly option fee, a lease fee, to the owner. This means you then get to use that property. You can either live there yourself, or you could rent it out to other people. The idea being what you pay the landlord is less than you can rent it out for, so you can make a profit on the property. A profit on a property you don't even own. If you've got a long enough Option period, you've got the right to buy it at today's market price. That might be a discounted price in the future. So not only can you get cash flow from a property you don't own with a Purchase Lease Option, you can also get potential equity growth as well. So this is a very, very powerful tool that you can use for your property investing. Now, that property could be a Single-Let, it could be an HMO, it could be Serviced Accommodation, it could be a Commercial to Residential conversion. Purchase lease options can be used in conjunction with any other property investing strategy. Now, how do you find them?

Again, you go to a local Estate Agent and say, "Have you got any properties that are listed for sale," So the seller wants to get rid of this property, "But also they're listed for rent?" What that means is the owner's saying, "Well, I want to sell, but if I can't sell it, in the meantime I'm prepared to rent the property out." That's exactly what we're doing with a Purchase Lease Option. We're going to buy it in the future but for now we're renting their property. So it's really important you understand this. By the way, when we speak to an agent, we never use the term ‘Purchase Option’ or ‘Purchase Lease Option’. This is because they just generally do not understand what that means. We use very simple language which explains how we're solving the problem.

You might think, "Well, hang on, will an agent agree to this?" If a Purchase Option is three or four years, surely an agent's not going to agree because they won’t be paid their commission. Well, actually, I'm doing some live training all about how you can not only find these Purchase Options and Purchase Lease Options, but what you would say to the Estate Agent. You will learn how to communicate so they not only understand it, but they want to recommend it to the seller, and give you the deal.

So if you want to come and register for the completely live, online, no cross-training, click on the link below this video and come and register and join me on this live training, and I'll teach you exactly how you can do that. Fundamentally, what you do is you agree that the agent is going to get paid their commission once the deal is done and once the contracts are signed.

We always use solicitors to do the paperwork. So in other words, the agent's going to get their money much sooner than they would normally get. I'm going to teach you exactly what to say in this live training, so come and register for that because I want to share that strategy.

First of all, we can start with Estate Agents. The other way of finding them is contacting landlords. Landlords have got properties they're renting out. Those landlords might want to, at some point, retire in the future. So we can take on the property on a Purchase Lease Option. We can do the management. We can take away all the hassle from that owner. We can also agree to buy in a few years' time. Why would that be of interest to them? Well, generally, landlords have a number of properties in their portfolio. If they want to sell those, if they sell them all in one year, they're going to pay a lot of Capital Gains tax. However, if we can help them phase those sales over a number of years, they can actually reduce the amount of tax they pay. It's all about finding people who've got a problem and coming up with an ethical win-win solution that's going to work for them.

So contacting landlords directly through Landlord Letters is another great way of finding Purchase Options and Purchase Lease Options.