Now there’s a challenge!
Some people will turn around and say it can’t be done. Well I have news for them – It can be done and in fact many investors are doing this now!
Obviously, you need some money but we will go into this later.
The simple question is how do you do it?
Simple… you Control Not Own
This is where you will control a property, receive the rental income and pay the mortgage and all the expenses. The same as if you had bought the property. The only difference is that you do not own it! But you do control it. Let’s look at how you do this.
Rent 2 Rent
This is a relatively new way where you make strong cash flow on property by renting it from landlord who may be sick or tired of his or her properties or both!
Believe me there are a lot of these landlords out there and equally there are a lot of investors who see an opportunity that others don’t.
Typically, you would agree to rent a property from a landlord at a fixed price for a fixed period. Say for round figures you agree a rental per month of £200 but you know you can get £500 if you let it to professional tenants. That would give you a £300 per month cash flow or £3,600 per year for little or no outlay. You might need to give the property a small refurbishment at the beginning but that’s all.
There are many landlords who are just happy with a fixed amount each month. They don’t want the hassle of being a landlord any more they just wanting a quiet life.
Lease Options
These are effectively a Rent 2 Rent but with more control and an option to own.
Typically, on a Rent2Rent you would pay the landlord a fixed amount each month and they would pay the mortgage. With Lease Options, it is effectively a Lease of the property for a fixed amount of time. Usually a minimum of seven years. It also has an option to buy the property at a fixed price anytime in that agreed period.
We sell a lot of option contracts and the ones that are the best value are the ones where the option price is near or just above the current valuation. That’s where you can get the bonus of capital growth.
Using the example above as a reference, you are making a strong cash flow of £300 and you also have a 7 year option to buy at let’s say £50,000, which is the current market value. After seven years, if the property were to go up by 20%, as well as banking £25,200 in cash flow (£300 x 12 months x 7 years) you would also have £10,000 in equity if you were to exercise the option.
Example Deal – No Brainer!
There are a number of rent2rent & lease option opportunities becoming available. They are becoming very popular with tired or unsuitable landlords as they can get rid of what is a burden to them.
I want to show you one Lease Option we have just sold that I think is an excellent cash study.
A three-bed terrace property that is currently tenanted at £350 per month. It is in a good area and the option price is £50,000.
The mortgage payment is £130 per month giving a cash flow of £220 per month. The term of the option is for eight years. It is situated on a long road and there are a lot of different types of property so what is the current value? Hard to say but my estimate based on sold prices is that it is worth at least £50,000 now!
Let’s add up the figures after 8 years. £21,120.00 in total cash flow. Say the property increases in value by 3% year-on-year, then £50,000 becomes £63,338.00. This gives you £13,338.00 in equity for you to apply for a 75% loan-to-value mortgage for you to purchase this property.
The final question is how much did this deal cost? £5,000.00 sourcing fee (which you would make back after 2 years).
Conclusion
The Shrewd investor will gobble these types of deals all day long.
They are low cost, low risk and high reward.
Like anything else you need to do your research as for every good deal you are offered there will be a several duds. But these are great deals if you have limited initial capital. Keep a look out!