Thinking about lease options? Here’s why NOW is the time to start this strategy

Enhanced Transcribe:

Hi folks, Dr Ro here. 

If you are a property investor and you’re watching this and you follow some of what I do here I want to point out something and that is that we are in a time in history that is unique and yet is similar to where we’ve been before. 

I sat through the last 2000 and 2010 recession and I can tell you the concept of lease options exploded into the marketplace. 

It was already around, but it exploded in the sense that it was desperately needed, and lease options are the right to buy a property at some point in the future. 

Now with property prices likely to dip at some point into next year due to recession, due to Covid, due to lockdown, due to the government incentives being stopped in April, i.e. stamp duty, we’re going to see people forced due to their circumstances losing their jobs may have to move back in with their parents or parents that may need to move in with their kids for example. 

They need to let their houses go so with a lease option strategy, you have the opportunity to help them out to potentially look after their mortgage and pick the property up at some point in the future. 

A few caveats on this again you may not be aware of this model, but it’s very powerful because it means you don’t have to buy the property you have the right to own in the future. That means you don’t have to put stamp duty down. You don’t have to put your deposit money down, you are reducing your entry cost, but still winning by generating an income. 

The objective here if done properly with the right contracts would enable you to control that asset under an agreement and rent it out for more than you’re paying the mortgage and hence you keep the net difference. Which is a cash flow, ownership of a contract not of the property, so make sure that when you’re talking to the person it’s a win-win situation. 

Number two is to listen, ask them questions and listen to their pain. What are the key indicators they’re telling you that are causing them distress? If somebody desperately needs to move fast they’re worried about not being able to sustainably pay the mortgage and are happy to move back with their kids, but they don’t necessarily want to sell the house now because the market price isn’t right you could offer a price that works for them and works for you in the future. 

But number three, it needs to be a long option not a short option. This is not going to be a recession that kicks back out in the next year or two. We could be looking at a five year crawl back, maybe even longer, depending on how compounding Covid is on the overall economic situation which is bad enough as it is.

If you have a seven year or 10-year option it gives you flexibility, it allows the market to take its dip and then come back out the other side, so you might agree on a price. 

It goes down and then comes back up and you buy here at a higher price. You’ve got to give the sands enough time for property prices to rebalance and come back out the other end. That’s the principle of an option, as long as you make it a win-win. Everybody wins. 

Don’t make it, I’ll screw you over, but I’m going to win here, it needs to be fair on both parties. You then go and you would rent the property out to somebody else and generate an income from that, because you’re paying X out here and receiving X plus Y over here. 

That’s the principle. With all the announcements coming into Christmas, recession is biting, Covid round two get ready, start thinking as a property investor. 

Dr Ro signing out, have a great Saturday.

Disclaimer: This video or written publication does not offer investment or financial advice and nothing in them should be construed as investment or financial advice. Our publications provide information and education only. The information contained in our publications is not, and should not be seen as a recommendation to use any particular investment strategy. Always seek financial advice from an independent financial adviser around your own personal financial situation.

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