Tag Archiv: lease options

Lease Option Agreements – How to Recognise if there’s money in the deal | Dave O’Hara

When you have put out lots of yellow letters to your target houses, you’ll soon start to get phone calls (well, hopefully you will if you’ve written a good letter). Quick tip – get yourself a dedicated phone to allow people to ring you. Don’t use your normal phone number. If the phone rings, don’t pick up. Chances are you’ll be doing something else and won’t be prepared for the phone call. Let it go to voicemail and then call back. Sometimes the caller leaves a message and sometimes they’ll drop you a text telling you which house they’re ringing about. This is all good info. Ring back when you’re comfortable and have all of your gear to hand (pen, pro-forma, script). Find a comfortable place to do it from. In the recent hot weather I’ve been using the garden as my office.

Run through your script and make sure you ask all your questions, but try not to make it sound like a list. Try to strike up a conversation and work the questions into it. This way, the vendor won’t feel uncomfortable. You’ll find it easier too. Sometimes the owner will be enthusiastically helpful, they’ll tell you all kinds of things in addition to the questions you want answers to. Sometimes you’ll get short answers and they’ll not go into any financials. I always say that without knowing all the facts it will be impossible to make them an offer. Sometimes that persuades them, sometimes not,
but when you’ve gathered everything you need to know, tell them you’ll go away and do some number crunching, then get back to them.

When you are first starting out with Lease Options, like we were a few months ago, you’ll not realise whether there’s anything in it for you as you fill in the forms. After a while, you instinctively recognise when a house is a possible lease option and there’s going to be a good positive cash flow if the owner takes up the deal. Try to get £250 positive cash flow each month if possible. Here are a few examples of the types of situations we’ve discovered.

A good opportunity – money in the deal for both parties

House for sale price : £70,000 (reduced from £80,000)
Mortgage : none
Reason for selling : Moving in with someone else
Wants to be a landlord? : No
Needs the money? : No, more interested in income
Likely monthly bills : £200 (council tax, gas/electricity, insurance, water)
Rental in area : £550 pcm

In this example, the fact the owner has no mortgage is a good thing because it gives you the latitude to pay them a good monthly amount, whilst still having a decent positive cashflow for yourself in the deal. It’s necessary to compute a likely term for your lease option. This depends on the rental value and the purchase price.

Now for a bit of maths. Decide what you purchase price will be. To give the owner an incentive, that would have to be £70,000 or more, so I always find out if the house has been reduced and by how much, then if that price seems reasonable, i’d offer them more.
The house is currently for sale at £70k, but i’d tell the seller that I could offer them £80k (the price before the property was reduced), but i’d need time to pay it.

An £80k house will need a £20k deposit for a BTL mortgage, so the next thing you need to do is calculate how long it’s going to take for the rental you intend to make on the property to add up to £20k. If you get £550 ppm in rental, a good offer would be £200 each and every month to the vendor. That would leave £350 to save for the mortgage, plus to pay for any monthly fees you may have. Let’s say that leaves you with £250 per month.

£20,000 / £250 = 80 payments.

This means it’ll take you just shy of 7 years to save your deposit. So your offer to the seller could be :

Lease Option Offer
Offer £56,000 [OR]

Option to buy the house in 7 years for £80,000
In the meantime, they’ll be paid £200 pcm until then

In 7 years you’ll have enough to get a BTL mortgage on the property, without using any of your own money! In the meantime, you’ll control the property and be bringing in £350 pcm from it for 7 years. The seller will be £350 pcm better off (no bills + your payment). Of course, all of this is negotiable and if the seller wants a higher price, you’ll need a longer term, and conversely, the sooner the seller wants his money, the lower the price you’ll pay.

You could also structure the deal so that the owner is paid more per month, but this will reduce the final purchase price after the option period. If the owner is paid £500 pcm then calculate how that extra payment reduces the final buy price.

A bad opportunity – no money in the deal for you

House for sale price : £70,000 (reduced from £80,000)
Mortgage : £65,000 remaining. Repayment mortgage (£450 pcm)
Reason for selling : Moving to a bigger house
Wants to be a landlord? : No
Needs the money? : Yes
Likely monthly bills : £200 (council tax, gas/electricity, insurance, water)
Rental in area : £400 pcm

The vendor wants to sell, but there’s no cashflow in the deal for you. Even if you rented out the house at the local rental rate, you wouldn’t be covering the mortgage payment. In addition, you wouldn’t be able to offer the vendor that lucrative income either. He would be better off by not having to pay the bills, but there’d be no money to save for your BTL mortgage after the period of the lease, so there’s no lease option offer that could be made. In this case, the owner has also said he needs the money immediately.

Offer
Cash Offer £56,000

As this offer is £9k less than the vendor owes on his mortgage, he’s unlikely to accept (unless you’re VERY lucky). At only £400 pcm available in rent in the area, the yield would also be on the low side when you rented it out.

Yellow envelopes take over the World | Dave O’Hara

Well, maybe not the whole World, but a very small part of it. Yellow envelopes are our secret weapon though. How many letters do you get every day in yellow envelopes? That’s right. None! If someone sent you a bright yellow letter, would you be intrigued by it’s uniqueness and be compelled to open it? We think so!

The whole point of writing to someone by conventional means is to have your letter read. If you can get them to do that, you are in a perfect position to get your offer across. Stats indicate that for every 100 letters you send, 10 will result in a call back, 3 of those will be seriously interested in the offer and one will actually sign up to your offer. So it’s a numbers game. If you want 10 sign ups, you need to send 1,000 letters. That sounds a lot, but you don’t need to send them all at once! Spread them out so you can take the phone calls, otherwise you’ll be deluged. One deal a month is fine, so send out 100 letters every month. In this particular type of property deal, each sign up should be worth £3,000 per annum, so after 10 deals in a year you’ll be receiving £30k of passive income! Awesome or what?!

Getting started is the hardest part. What should I ask? How do I ask the questions? What if they are hostile, or turn me down flat? Well, i’m no expert, i’ve only been doing this for a few weeks, but i’m getting more confident by the day and, believe it or not, people are usually nice. The fact that they’ve rung the number on your letter means they’re already interested in what you have to say, so don’t be afraid.

My advice, for what it’s worth is, try to strike up a natural conversation. Work your questions into the conversation so they don’t really feel like questions at all. I now say “Tell me about your house”, and folks will generally let you know all there is to know about the property they are selling. To find out if there is a deal to be had, you need to know the details of their mortgage (type, monthly payment, amount remaining) and you also need to find out how motivated they are as a seller.

Once you have gathered all your info (always have a proforma sheet available to fill in the blanks as you talk), thank them for their time and schedule a call back after you’ve crunched the numbers. Always ring them back at the agreed time, it builds trust and let’s them know you’re professional and value their time.

Crunching the numbers is all about working out if there is any money in the deal for you both. It needs to benefit both the seller and you the buyer otherwise there’s no point in making a deal. I’ve learned quickly what sort of nett rent I need for a particular purchase price to make a deal viable. Get used to that too. If you need to cover a £600/month mortgage but local rental income is only £500/month then it makes little sense. Aim for a minimum of £250/month nett positive cashflow (£3,000 per annum) if possible.

Comedy Call

Want to hear about a comedy call from a guy in Middlesbrough? This actually happened recently when we ‘yellow lettered’ the Teesside metropolis. You need to imagine the caller speaking in broad smoggie.

Me: “Hello, Dave O’Hara speaking, how can I help”?

Caller: “Alright mate, i’ve ‘ad a letter off yers”

Me: “Ah yes, we’ve sent a few letters to houses we’re interested in buying, can I ask the address please so I’m certain which house we’re talking about”?

Caller: “Aye, it’s number 10 mate”

Me: “And can you tell me the street name as well?”

Caller: “Aye mate” (long pause)

Me: (quickly realising this might not be straightforward) “OK, tell me about your house”

Caller: “It’s not my house mate, know what am sayin’ ?”

Me: “Are you the tenant?”

Caller: “No mate, it’s me mam and dad’s house like, know what i’m sayin’? ”

Me: “Ah right, well I think it’s them I need to speak to”

Caller: “Aye, probly”

Me: “Can I speak to them please?”

Caller: “Nah, ther in Benidorm mate, know what am sayin’ “?

Me: (knowing what he was saying) “OK”

Caller: “I’ve just split up with me girlfriend like, know what am sayin’ “?

Me: “Sorry to hear that, do you know when I can speak to your parents”?

Caller: “Problys aye. D’yer wanna buy the house like”?

Me: “Yes, I am interested”

Caller: “Me an me mates can buy this house like, know what am sayin’ “?

Me: “When can I speak to your parents please?”

Caller: “After August like”

Me: (with no intention of ever ringing back) “OK, i’ll ring back then”

Caller: “Alright mate, mint”

Thankfully, not all phone calls are like this, but sometimes you get them (know what i’m saying?)

New Advert Board for Property Services

After joining multiple Facebook groups to see what property people are dealing in, it became clear that the different types of investments are scattered into many different places, so I decided to open a free property services directory section on the site to allow people to post their own property services.

If you are a seller, a property you’d like to buy but need sources of finance to allow you to buy, or if you have a lease option you’d like to pass on, then post your service details on the board. You can then link it to Facebook or Twitter and this will help spread the word and hopefully make your property services and your advert visible to many more people.

As we all know, THE most important thing to do in property is to Network and make connections. This becomes easy when like minded people gather in the same place. That’s what i’d like the Property services section to achieve if possible.

Please give it a go. Like I said, it’s free to use and hopefully will help you get your word out and make us all more money 🙂

Advert Board : https://dkohara.com/directory/


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Review : Samuel Leeds Deal Finding Extravaganza / Never Use Your Own Money Again | Dave O’Hara

picture of Hilton Hall near Walsall

Hilton Hall, nr. Walsall

After waiting for what seemed like an age since we first went on the Samuel Leeds Property Investors Crash Course in Manchester in February, we rocked up to Hilton Hall just outside of Walsall for the next stage on our property journey. What a place to have a training session! It’s set in it’s own grounds with lakes and untold prettiness (squirrels and other furry critters abound). I bet working there is an absolute treat.

One of the first things we noticed was how many familiar faces we recognised from the earlier course. Everyone looked just that little bit more confident than some of the slightly timid characters we first met in the cold days at Salford. Maybe it was just the fact that summer had rolled into town this week that did it, but we got the impression that the crowd were very up for it.

This course was over three days. Everyone had paid a premium for these sessions; they’re more in-depth than the free Crash Course days. You can tell that the people are more committed and convinced that property investing is their future and everyone wanted to learn as much as possible from Samuel. The first day was the Deal Finding Extravaganza and day 2 and 3 were dedicated to Never Use Your Own Money Again, or as it’s catchily abbreviated, ‘NUYOMA’ (sounds like the Japanese teacup guy off Britain’s Got Talent). We all overloaded the Hall’s Wifi connection as the mass of electronic wizardry tried to log on to get access to RightMove, MousePrice and Zoopla.

Now, i’m not going to give away any information that Samuel taught us because that would undermine the integrity and point of the whole thing, but we watched as he found deals live from his computer at the front of the room and then worked out the yields and returns on investment. Very rarely did he turn up anything lower than 25% ROI. Then he set us all off to find our own deals in the lunch break.

The afternoon consisted of people revealing their ‘deals’, and then we all piled out to visit a couple of Samuel’s HMOs in Wolverhampton, followed by a visit to Cosmos Asian Fusion Buffet where I’m sorry to admit we rather stuffed our faces (but Samuel was picking up the bill). It seemed straightforward. We agreed to give a lift to Rob, who was in his camper van, and the idea was that we’d take him to his camp site, drop the van off, then take him to the HMOs, but we lost him in the outskirts of deepest, darkest Walsall and by the time we found him again, we’d missed the first HMO completely, and only got to the second one as everyone else was coming out! The day had been great though, and everyone was still buzzing in Cosmos even after 12 hours of intense property hunting.

NUYOMA

Day 2 opened with the brightest and bushiest tailed people in the room by 8:15am for the nine o’clock start. We were in the Travelodge Southbound on the M6, so frustratingly had to head south to the next junction, then do a U turn and come back again (about 10 miles in total). It was only after we’d done this a couple of times that Zach, a sprightly young student of accountancy, who unknown to us was also at our hotel, revealed a secret service road he’d been walking in on. It was only a mile and a half! We had to go through a no-entry sign, but it saved us loads of time. The second and third days are dedicated to No-Money-Deals. Basically, buying property with other people’s money. Sounds good doesn’t it?

Samuel taught us several ways to do this (a couple of which we’d already successfully done in ‘real life’) and there was a very interesting and valuable presentation by Sarah Poynton-Ryan who took us through Compliance, Bribery and Data Protection Laws amongst others, as well as introducing Deal Sourcing, Deal Packaging, R2R and Serviced Accommodation. (MEGA profits to be made on Serviced Accommodation, must look into that closer to home). The pace remained high until the slightly earlier finish time, with the usual role playing things to get everyone out of their comfort zone and thinking laterally. Thank God for the sandwich van is my only other comment.

On day 3, Zach took us on our little short cut, but the weather had turned foul and it was tipping it down as we got to Hilton Hall. Rob, who’d cycled in on day 2 had resorted back to the camper van. Sensible chap Rob. We again got stuck into some great exercises, real fun stuff, to show us how easy it is to network in a room full of similar minded individuals (and get deals). There was a question and answer session with a very loveable mortgage expert who managed to answer EVERY question thrown at him by the baying hordes (Stop it! – Ed) and by the time the lovely sandwich van came again the punters were salivating for more. Our working lunch was to go away and raise ‘virtual finance’ by thinking of how we could use our friends and countrymen to slip us a quid or two to invest in our property empires. Samuel set a target of £1m. Zach got the job of counting the money.

picture of myself, samuel leeds and deb

Myself, Samuel Leeds and Deb

Going round the room, it was clear that we were going to absolutely smash the target and when the final total was computed it was around the £4.5 million mark. FOUR AND A HALF MILLION POUNDS !! Granted, that was a fantasy fundraising exercise, but it just showed the power of networking and collaborating within a common goal. Summing up the successes and learnings were at the end of it all. When we all broke up I felt like I was leaving old friends. However, I think we’ll be meeting some of you again, maybe in a Joint Venture or maybe we can source a property or two for you ‘up north’.

Altogether, the 3 day course was well worth the money. We filled the gaps in out knowledge that we wanted to fill, and learned a whole lot more as well. Many thanks to Samuel Leeds and his team, the sandwich van, Cosmos and the staff at the Travelodge, as well as Walsall chippy that stopped us eating each other at the end of day3.


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Samuel Leeds Property Crash Course Review | Dave O’Hara

If you’ve been following me since I jacked in the day job you’ll know that I’ve been hanging my hat on property as a sure-fire way of trumping the banks for making an income.

samuel leeds pictureOne thing you can never do too much of is research. The interweb is a dream for this, but sometimes it’s difficult to see the wood from the trees. Of course we watch all the property programmes on the telly as well, but realise they paint a rosy and very simplistic picture of what it takes to buy a house and make it work for you business-wise. There was a programme on last year where landlords and tenants would swap places, finding out what it was really like to live in the properties they were renting out.

Samuel Leeds

One of the landlords appearing on the programme was a guy called Samuel Leeds. He was a really humble guy and did his very best on the programme to help out his tenant, a lady who was worried about being evicted because she was struggling a bit. It turned out when he visited that she had a big hole in her roof, but didn’t report it because she thought he would put her rent up! I was impressed with the sympathetic way he treated her. In the end she had to leave for another reason, but only after Samuel bent over backwards to try to help her.

He turned up later in a Google search when we started looking for authorities on the subject of buying property. We recognised him from the programme and found out he had a good samuel leeds and sir richard branson picturebusiness going, mentoring and teaching other people how to make a living from property. He’s a Property multi-millionaire in fact, at less than half my age! Samuel Leeds rubs shoulders with the likes of Sir Alan Sugar, Sir Richard Branson and Arnold Schwarzenegger. He’s a little bit ‘evangelical’ at times in his presentation, not surprising considering he started as a church person, but his huge enthusiasm comes through loud and clear and he clearly knows his stuff. He’s also very ethical; ten per cent of his business profits go to charity.

Samuel has an excellent book published ‘Buy Low Rent High’, in which he outlines his strategy for property investment.

So, we’re booked on a two day property crash course with him in February in Salford, Manchester to educate ourselves further about property investment.


Samuel Leeds on Twitter

[custom-twitter-feeds screenname=samuel_leeds num=3]

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