How to Upgrade Where You Live

In this blog, I'm going to share with you how you can upgrade where you live, using Purchase Options and Purchase Lease Options. If you're currently renting, learn how you can get your foot on the property ladder without a big deposit or without a mortgage. Also if you already own a house, how you can move into a bigger property and either rent out your home for a monthly profit or set it for a tax-free lump sum. I will also talk about how you can access the equity in your own home, that you thought you could not access due to maybe age or lack of income.

Now, let me ask you a question, whether you are renting or if you own a property, would you like to live in a bigger property, in a better area, than you do right now? If the answer's yes, you're going to love this blog.

Benefits of a Purchase Lease Option

My question to you is why buy when you can rent? A large deposit and mortgage would be needed, on your next home, if you buy it. Why would you want to tie up all that capital, if you could rent instead? Your capital could be used instead to buy an income-generating property. Why go through all the hassle of getting another mortgage on your own home? Instead, you can live in a property with a purchase lease option in place.

You have the flexibility to buy if you want, or you don't have to, if you don't want to, you still get to benefit from potential capital growth with a property that you don't even own.

In case you don't know what a purchase lease option is, you need to go back and read my ‘introduction to purchase options and purchase lease options’ blog.

The basic concept is renting a property for a number of years, and then having the right to buy that property in the future. Affordability is really important and you need to make sure you can afford the rent of the property you're moving into. You don't want to put yourself into financial difficulty and you've got to be realistic about your budget.

"Less is paid to the owner than with their current rent or mortgage"
We all want to live in a bigger, better house, but you do need to be able to afford this. However, hopefully your future income should be more than it is right now, especially if you're investing in property, you should be getting extra income coming in if you're taking action and getting results.

Affordability is Key

Another question for you to think about is, how much are you currently paying in rent or on the mortgage on your own home? Because a purchase lease option might be less than you're paying right now. We've had a number of students who've done this. They've moved into a PLO, whether it's their first property, because they've been renting or they've already got their own home, and often they pay less in the option fee. Less is paid to the owner than with their current rent or mortgage. So they're actually better off financially.

However, if you want a bigger, better property, you might be prepared to spend more money. So the question is how much would you be prepared to spend? How much could you afford to spend on a bigger and better property? You also need to think about affordability to actually purchase the property if you want to do that. How much deposit would you have to put in? How much would you mortgage? How much money would you need to borrow for that mortgage? Will your income be enough to obtain that mortgage? This will help you assess if you're going for the right kind of property that you will be able to afford in the future.

Could you maybe get some lodgers to come and rent out some of the rooms in the property to help you cover the costs? Remember, you don't have to buy this property, if it's not affordable for you, you can always assign it to someone else for a profit.

"We're looking for people we can find an ethical win-win with. This is a great solution for them as well as being a great solution for you."

What to Look Out for: PLO & PO Sellers

So what are you actually looking for? We want to look for people who want to sell their property. Obviously to do an option it's important they don't need the money from the sale now, and they also don't mind letting the property out to you for a while. Ideally they might have no mortgage at all, or they have what we call favourable mortgage conditions.

Importantly, they don't want the hassle of managing their property, they don't really want to become a landlord, they just want to move on with their lives. We're looking for people we can find an ethical win-win with. This is a great solution for them as well as being a great solution for you. So where do we find these types of properties? Once you're clear on what you want, you can obviously start looking. An estate agent is a great place to find them. You can look for properties that are listed for sale and also listed for rent, because that means that the owner is basically wanting to sell it, but they're happy to rent in the meantime. Or maybe there are empty properties that have been on the market for a while. Maybe the owners have already relocated and they've got a mortgage that's costing them money. They just want to get an income coming in and they're happy to sell in the future. They don't need to sell this one because they've already moved on.

You can also go to letting agents and see if they've got properties they're struggling to let out. You're going to move in for guaranteed rent. If the owner has not been able to rent it out and it's been losing money for them, they might be interested in selling it in the future.

There are also landlords who are looking to retire and there are a huge number of those at the moment, particularly because of the latest tax changes in Section 24. Although these came in during April, 2017, they have been phased in and are fully in place now.


Is Your Purchase Lease Option Appropriate?

We've got to make sure that a PLO is appropriate. Don't suggest a PLO if it's not appropriate for the seller. It's really important that they don't need the money now. What you suggest to them, should be better than whatever their alternative is.

The alternative is maybe they just wait until a buyer appears, but that may not happen. Or you can take care of the property for them, and you can even help them make more money than they would in a traditional sale. So what are the benefits to the owner of doing this? Obviously you've got to be really clear on how they're going to benefit from it. You will have to explain how it's going to be a good deal for them, otherwise you're never going to be able to get them to agree to do it.

First of all, the deal can be completed in a matter of weeks, three to four weeks. Obviously we do everything through a solicitor, but that's much quicker than an actual purchase. They stop having to pay out any more money for the property. So if they've got a mortgage, you can take care of that. If they're paying the council tax or the electricity gas standing charges, you can cover those for them. So they're going to stop losing money. They've got no more hassle, they don't have to worry about the property anymore. Maybe you could even pay their estate agent fees upfront for them, as part of the upfront option fee, so they can just move on with their life and forget about it. They can sell for the full market price, or maybe even slightly more. This is because obviously your intention is to buy it in the future, and so you can offer them more than it's worth right now.

The End of an Option Period

So let's assume you get a property that you move into as your new home, what are the exit strategies at the end of the option period? There are four things you can do.

You can either purchase the option at the agreed price, which is the primary thing you want to do.

Or maybe you can negotiate an extension to the option period, the market may not have gone up enough, or you don't quite have enough money to buy. There's no obligation for the owner to extend the contract, at the end of the option period, control comes back to them. But if they've been happy with the arrangement, they might extend it. Perhaps give them slightly more money as an upfront option fee and pay them a bit more each month, but you could absolutely negotiate.

You could assign the property to another buyer. Remember options should always be assignable, you don't have to buy, you can pass the benefit onto someone else. Or you could decide to walk away from the purchase. Remember with a purchase option, and a purchase lease option, you have the right to buy but not the obligation to do so.

Now from an ethical point of view, I believe if you enter into a PLO, your intention should be to eventually buy that property, but you don't have to. I moved into a property that I was looking to live in, with an ex partner of mine, and we decided after a while that although it was a lovely property, we didn't want to live there long term for various reasons.

We told the owner, he was a bit disappointed, but was happy with how we added value to the property. He was happy to live there renting until he could sell. This suited us quite well, we were looking around for something else to buy and it was a win-win.

I believe if you don't exercise the option, you should absolutely give the property back to the owner in a better condition than it was.

Exercising an Option

When it comes to exercising the option, you need to notify the seller's solicitor that you want to exercise the PLO. In fact, your solicitor will notify their solicitor. Before the end of the option period, I suggest six months before the end of the option period, you start your mortgage application. It can take a long time to get mortgages, and you want to make sure you are in a position to buy this property before the end of the auction period. You don't want to run out of time, because remember the property goes back to the owner if that happens. You will buy at the option price that you've agreed, even if the value is more.

So let's say the property is worth £250,000, but you've got the right to buy it at 200, you will be buying at the 200 price. You can refinance after six months of ownership to put out the deposit you're putting in.

You also don't have to buy the property. You could walk away, you could assign it onto someone else and make a profit. So if it's worth 250 and you can get to buy it for 200, you might sell it to someone for 240 at a bit of a discount. In that case, the difference of 40K would come to you as a profit. You need to think about how you're going to fund your deposit.

I do want to share one other concept with you, a lot of people have a valuable home that they live in, but they don't have enough income to be able to release equity. This is to buy more investment properties. So what some of my students have done is they've moved out of what was their home and they've turned that property into a rental property. Then based on their rental income, rather than their personal income, they're able to extract money to further develop their portfolio. However, they might sometimes go and rent somewhere, or you could indeed go into a PLO so your foot is still on the ladder for your own home, But you're just making the most of the assets in your own home.

So hopefully this has stimulated your thinking about how you could move into a better home to live in for yourself. In the meantime, why don't you register to come and join me for some live online training all about this? I'm running a full day of training which I'm spreading over a number of evenings so it's nice and easy to access. You can go and register by clicking on the link below.

It's completely free, it is live, we're not issuing a recording. So come and participate in that, and I think you'll really understand exactly how you can use these very powerful strategies. So until next time, remember to invest with knowledge, invest with skill.

FREE Purchase Lease Options Training  - LIVE

If you would like to learn more about Purchase Lease Options, join Simon Zutshi for some live online training, all about how you can use Purchase Lease Options and Purchase Options in your property investing.

Click here to register and get your questions answered about these incredibility powerful investing tools.

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