Property Investment portfolio building in the present financial climate is no easy task for the traditional property buyer, mortgage companies and lending institutions have stringent criteria to ensure their financial borrowing is covered.
None the less we are where we are and we have to make the best out of what is available and that isn’t always going down the mortgage route to buy if your aim is portfolio building. It can still be done using normal mortgage procedures but these days it’s better done by a third party portfolio builder as lenders want to see landlords with jobs as well as property.
For hands off property investment portfolio building there have never been better times but for those new to property or trying to build wealth from simple means then other alternatives may need to be used. You will hear lots of terminology such as lease options (LO), rent to buy (RTB), rent to rent (R2R), tenant buyers (TB) etc.
Don’t get too hung-up on the names of agreements.
The basic principle is if the vendor and purchaser can make an agreement between themselves over the property, then the legal people should be able to put that agreement into the right wording to draw up a contract that becomes a win/win scenario.
When and wherever we are portfolio building we always want to create a better situation for all parties concerned so that no animosity or resentment is present later, everyone feels they are getting the best for themselves and there is some on-going potential to create something from the deal.
As today’s property market is so difficult for everyone involved, we need to be a little more discerning in our quest to make gains rather than take advantage.
The property deals are out there but so are the unscrupulous scoundrels with no morals hell bent on getting every penny out of every deal they can.
So both buyer and seller need to have their wits about them when doing any kind of deal which is not through a third party.
All paperwork must be completed by a solicitor but a heads of terms agreement between the parties can give all the instructions to the solicitors for them to carry out their work.
Anybody coming into property investment must really determine their strategy and decide if lease option type arrangements are really good for them.
Lease options are not necessarily the right tool for every property investor who is portfolio building. Whilst they do reduce the amount of cash necessary to control a property, the majority do not end in the lessee actually buying the property, so the lessor who originally owned the property can end up in the same or worse situation some years down the line.
It can even be a waste of money for the lessee if they are not capable or confident of making the deal work by managing the property properly afterwards.
Due diligence is always necessary when buying or dealing in any property arrangement and a few hard questions beforehand can save a lot of expense later.
Tips of the week
Simple maths used with questions such as:
- Can I afford to pay the option agreement figure?
- Do I actually want to buy and own this property at the end of the lease arrangement?
- Will I be able to get finance when the lease arrangement ends?
- Will I be able to make money from the arrangement by renting to others?
- Will I be able to meet all the other costs of ownership as well as pay the lease amount month in and month out?
- Am I going to make enough to cover expenses when I allow for voids, maintenance, mortgage, insurance, certification etc?
The answers to these for the first property will be multiplied when the property investor’s portfolio building actually gains some momentum.
- Presuming you decide that these types of deals are suitable for you, we certainly wouldn’t recommend them for the majority of people; there are certain requirements that need to be covered if you want your portfolio building to go smoothly.
- Make sure the lease option contract specifies a reasonable fixed price for the purchase.
- Don’t just accept any deal so you have a deal, make sure that it works for you and the present owner in a fair way and you both understand the agreement.
- Be aware of changes that could affect your financial well being which could affect your ability to maintain your part of the agreement for the set term.
- Be very careful of any arrangement that means you will need high interest finance and make sure you are getting credit towards the agreed purchase price of the property.
- Don’t make any arrangement without proper qualified legal and financial advice.
- Always understand your own finances before agreeing options.
Call The Team at Palatine Property Solutions today and quote “MyPropertyPowerTeam” to see what Lionel and his team can do for you 0161 871 8444
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