lease option power plays

8/9/2019 Lease Option Power Plays

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5 Lease Option PowerPlays



By

Hanif Khan, Shimon Rudich, & Richard Shepherd

The Most Advanced Technical Reference On Lease Options In The UK...


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5 Lease Option PowerPlays Introduction Page 2 of 68

Introduction

The year 2009 saw the concept of lease options explode onto the UK residential property scene.

Although property options have existed in the UK for hundreds of years, a combination of the lack of mortgage finance, the UK property market bottoming-out and avid property investors determined totake advantage of both of these factors saw investors turn to more and more creative strategies forinvesting in residential property.

In a property market that has already fallen by an average of 20%-25% from its peak in July 2007,property investors are eager to cash in on this Buy Opportunity Of A Lifetime - property prices are solow it is unlikely that we will see property prices this low again for the foreseeable future. However,the one hurdle investors do face is mortgage finance which is still difficult to obtain especially forfull-time property investors unable to prove their income.

What this book will show you is how to take the banks out of the equation so that you can still buyproperties regardless of whether the banks will lend to you or not. You will learn how to use thepower of options to gain control of property, how to generate cashflow while you are in control of the property, and how to make tens or even hundreds of thousands of pounds whether you buy,keep, or sell properties.

This book will give you 5 Advanced Option PowerPlays that you can use right now in this market tobuy property. We will look at the situation that each deal is good for as well as providing ananalysis on the valuation, negotiation, the legal considerations and the numerical construction of each deal.

This book is perfect for the current market of 2010. Rather than falling prey to the seemingly erraticnature of bank decision-making, each PowerPlay empowers you to continue to invest in propertyregardless of the prevailing mortgage conditions. Using these PowerPlays there is simply no excusefor anyone not to buy properties.

What Is An Option?

Quite simply, an option gives you an opportunity to buy a specific property.

The legal definition is that an option gives you the right, but not the obligation to buy an asset at aset price within a specific period of time. In other words: you can buy it if you want to, but you dont

have to if you dont want to.

Why is this desirable?

Over the last 50 years UK property prices have doubled in value every 7-10 years. Lets say that youhave control of a 250,000 property today. Now l ets assume the mortgage is 230,000 and you hadan option to buy it at 230,000 at any time over the next 10 years. By then the property should havedoubled in price, i.e. 500k. Lets just say you simply rent out the property at a profit of 250 permonth. This is how this examples plays out:-


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Upfront Profit: 0

During The Option Term: 250 x 12 months = 3,000

X 10 years

= 30,000

Back End Profit: Property Value = 500,000

- 230,000 Purchase Price

= 270,000

Total Profit: 300,000

This is a huge 300,000 profit for simply controlling a property with the option to buy later. This isan example of what can be achieved using the power of options. Now do this once a month for 12months and what you have is one highly effective strategy

However this is merely one PowerPlay!

The Power Of Options:-

The phrase lease options is very sexy in the UK property market right now. However, it is not theonly way to capitalise on property options. Whereas some gurus may have you believe that leaseoptions have only recently come to the UK from Australia and the USA, the reality is that propertyoptions have been used in the UK for hundreds of years. The objective behind this book is to showyou that there are far more than just 1 or 2 methods that options can be applied to. At this point itshould be noted that the authors broadly expect the UK property market to remain at its currentlevel for the next 3 years plus so at least until 2013. The 5 Lease Options PowerPlays presented in

this book should help you create good cashflow and massive cash profits during this time andbeyond.

This manual is the culmination of years of investing, advising on property deals, legal research, andinvestment analysis not just from the authors own experience but also of the thousands of propertyinvestors that they have trained and represented between them. We present you with 5 PowerPlayshere that you can use to immediate effect secure in the knowl edge that other investors dont havethese PowerPlays at their disposal. This is a shame as you have already seen how easy it is to createtens of thousands, hundreds of thousands, or in some cases over a million pounds worth of profitout of thin air.


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You will learn how to give your dead deals the kiss of life, how to create quick cash in a fallingmarket, how to do No Money Down deals, how to solve your sellers problems in a creative way,how to turn unworkable deals into moneyspinners using these 5 innovative Property Option

PowerPlays.

We present you in this short book with PowerPlays that relate to residential properties,developments, land and commercial property which should unleash your creative energies andtransform the way you do your property deals. Each PowerPlay comes complete with a Heads Of Terms which is a legal document. Use this Heads Of Terms as a template for the initial agreementthat you would sign with a seller eager for you to take their property off their hands. You will simplyget the seller to complete the Heads Of Terms along similar lines to the ones presented here andreturn to your solicitor to secure the deal.

Each Heads Of Terms has been put together by MS-Law Solicitors who are the leading legal firm inthe UK for residential option agreements. For the last 18 months MS-Law have been at the forefrontof this revolution changing the face of lease options in the UK both in terms of their legal standing,but also in terms of their creative flair.

This book is part of a much larger reference manual which demonstrates 51 Property OptionPowerPlays a 500 page 2 Volume Set delivered to your doorstep - which lays out all the latestgroundbreaking methods that you can use today to create jaw-dropping property deals. ThisReference Manual includes many secret PowerPlays that the authors have never taught propertyinvestors or clients before. This is not only the UKs most advanced reference on options, but the

most advanced reference on options that has ever been written in the English language.

Please use the QuickRef overleaf to match the situation you are currently facing with your seller andtherefore which PowerPlay or PowerPlays you can refer to for guidance on how you would go aboutstructuring your specific option deal. The 5 PowerPlays contained here will give you many of thebasic situations that you will find yourself in. For more advanced strategies where youre looking tomaximise the opportunity, you should refer to the 51 Property Options PowerPlays where you willget guidance on how to combine the PowerPlays and how to tailor them to your deal.

We have given you within this book a flavour of the strategies in each of the different sectors:residential, land, development & commercial. In 51 Property Option PowerPlays - the 500 page 2-Volume Reference Manual - we also include how to structure whole property portfolios usingoptions, and how to combine the strategies.

The 2 Volume Set is only available on limited release so make sure we have your details here:-

www.LeaseOptionPowerPlays.com .

Hanif Khan, Shimon Rudich, Richard Shepherd
http://www.leaseoptionpowerplays.com/http://www.leaseoptionpowerplays.com/http://www.leaseoptionpowerplays.com/


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5 Lease Option PowerPlays QuickRef Page 5 of 68

Quick Reference

How to Use The Lease Option PowerPlay Quick Reference

While Property Options are very powerful, much of their power lies in being able to match yoursellers situation with the property and with your needs and to design an option agreement that ismutually beneficial.

There is also a huge amount of flexibility in option agreements, and much of their flexibility lies inbeing able to steal ideas from certain PowerPlays and apply them to others when it is appropriate.

The Quick Ref on the next few pages empowers you to construct creative option agreements basedon the seller s situation and the property.

What Is The Situation:

This describes the situation your vendor is facing and matches it up with the type of property orproblem.

Primary PowerPlays:

Describe the 1 or 2 PowerPlays that are best matched for the situation described.

Secondary PowerPlays:

These are other PowerPlays that could come into play instead, if the situation is similar but notnecessarily an identical match to the situation described.

Other Possible Combinations:

Read from left to right, each line of these PowerPlays are combinations that you can combine to puttogether perhaps the most powerful and creative option agreements for maximum cash out andmaximum profit with minimum outlay.


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51 Property Options PowerPlays

Quick Reference

What Is The Situation? You Have A Vendor Who Is Moving Abroad And Cannot Sell Their Property

Primary PowerPlays: The Managed Option Contract

Secondary PowerPlays: The Classic Moc Multiplier The iMoc The Option Flip sMOC The Buy Out Option The Ugly Duckling Divide & Conquer Option The Sweat Equity Option The Vendor Double Dip Option The Cashback Option The Subsidised Option The Mission Impossible Option The Yin Yang Option The Instalment Contract The Guaranteed Rental Scheme The Contract Management Option The Corporate Option No Money Down Option The Trust Deed Option Traditional Vendor Finance Earnout Strategy The Option Lead Flip The Assignable MOC The Equity Split Option The Sandwich Option The LHA Strategy The Holiday Option


The iMoc The Buy Out Option The iMoc sMOC The Buy Out Option The Option Flip


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Quick Reference

What Is The Situation? The Property Is In Negative Equity & Negative Cashflow And Cannot Sell TheirProperty

Primary PowerPlays: The Mission Impossible Option The Cashback Option The Subsidised Option

Secondary PowerPlays: The Managed Option Contract The Classic Moc Multiplier The Slice & Dice Divide & Conquer Option The Option Swap The iMoc The Instalment Contract The Contract Management Option The Corporate Option sMOC The Option Lead Flip The Assignable MOC The Equity Split Option The LHA Strategy

Other Possible Combinations: The iMoc sMOC The Mission Impossible Option

The iMoc sMOC The Option Swap The Classic Moc Multiplier

The Cashback Option The LHA Strategy

The Subsidised Option The Contract Management


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Quick Reference

What Is The Situation? Your Vendor Wants Nothing Less Than The Full Market Value for Their Property

Primary PowerPlays: The Managed Option Contract The Classic Moc Multiplier

Secondary PowerPlays: The Option Flip The Slice & Dice Divide & Conquer Option The Vendor Double Dip Option The Option Swap The iMoc The Instalment Contract The Guaranteed Rental Scheme The Contract Management Option The Corporate Option Earnout Strategy The Option Lead Flip The Assignable MOC The Equity Split Option The Sandwich Option The LHA Strategy

The Holiday Option Other Possible Combinations:

The Managed Option Contract The Classic Moc Multiplier

The Managed Option Contract The Vendor Double Dip Option

The Managed Option Contract The LHA Strategy


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Quick Reference

What Is The Situation? You Want To Buy A Large Property, But It Is Not Possible To Let As An HMO

Primary PowerPlays: The LHA Strategy The Contract Management Option

Secondary PowerPlays: The Slice & Dice The iMoc The Instalment Contract The Corporate Option sMOC The Sandwich Option The Holiday Option

Other Possible Combinations: The Managed Option Contract The LHA Strategy

The Managed Option Contract The Contract Management

The Slice & Dice The iMoc sMOC


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Quick Reference

What Is The Situation? You've Seen A Property That Requires A Full Refurbishment Before It Can Be Let

Primary PowerPlays: The Ugly Duckling The Sweat Equity Option The Builder's Bum Option

Secondary PowerPlays: The Slice & Dice Divide & Conquer Option The Yin Yang Option The Option Swap The iMoc The Instalment Contract The Option Lead Flip The Assignable MOC The Equity Split Option The Sandwich Option

Other Possible Combinations: The Option Flip The Builder's Bum Option

The Builder's Bum Option The Sandwich Option

The Builder's Bum Option The Yin Yang Option


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Quick Reference

What Is The Situation? The Mortgage Is In Arrears And The Bank Is About To Repossess The Property

Primary PowerPlays: The Option Flip sMOC The iMoc

Secondary PowerPlays: The Managed Option Contract The Classic Moc Multiplier The Option Swap The iMoc The Contract Management Option The Corporate Option sMOC The Option Lead Flip The Assignable MOC The Equity Split Option The Sandwich Option The LHA Strategy The Holiday Option

Other Possible Combinations: The iMoc sMOC The LHA Strategy

The iMoc sMOC The Classic Moc Multiplier


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Quick Reference

What Is The Situation? Your Property Won't Generate Enough Rent As A Single Family Let

Primary PowerPlays: The Classic Moc Multiplier The LHA Strategy The Sandwich Option

Secondary PowerPlays: The Option Flip The Sweat Equity Option The Subsidised Option The Cashback Option The Mission Impossible Option The Yin Yang Option The Option Swap The iMoc The Contract Management Option The Corporate Option sMOC The Option Lead Flip The Assignable MOC The Equity Split Option The Sandwich Option

Other Possible Combinations: The iMoc sMOC The LHA Strategy

The iMoc sMOC The Classic Moc Multiplier

The Builder's Bum Option The Slice & Dice


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Quick Reference

What Is The Situation? You Have A Property That Is Difficult To Manage

Primary PowerPlays: The Sale Option The Sandwich Option The Option Flip

Secondary PowerPlays: The Sweat Equity Option The Option Swap The Instalment Contract The Contract Management Option The Option Lead Flip The Assignable MOC The Equity Split Option The LHA Strategy

Other Possible Combinations: The Option Flip The LHA Strategy The Option Lead Flip

The Option Lead Flip The LHA Strategy


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Quick Reference

What Is The Situation? The Value Of Your Property Is Too High For A Standard Buy To Let

Primary PowerPlays: The Option Flip The Yin Yang Option

Secondary PowerPlays: The Option Swap The Instalment Contract The S&D Keep Strategy The Pension Plan Strategy The Storage Millionaire

Other Possible Combinations: The Option Flip The Builder's Bum Option The Option Swap

The Option Swap The Yin Yang Option The Option Flip

The Instalment Contract The S&D Keep Strategy


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Quick Reference

What Is The Situation? You've Found Some Land Which Has Development Potential

Primary PowerPlays: The Quick Land Value Creator

Secondary PowerPlays: The Development Option The JV Profit Builder Build To Keep Option The Storage Millionaire The Car Park Option

Other Possible Combinations: The Quick Land Value Creator The Storage Millionaire Build To Keep Option

The Quick Land Value Creator The Development Option The Car Park Option


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Quick Reference

What Is The Situation? Your Vendor Has A Shop He/She Wants To Rent Out

Primary PowerPlays: The Commercial Lease Option

Secondary PowerPlays: The Commercial Cashflow Lease Option The Commercial Sublease Multiplier The Commercial Option Flip The Simple Switch Option

Other Possible Combinations: The Commercial Lease Option The Commercial Sublease

The Commercial Lease Option The Simple Switch Option


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Quick Reference

What Is The Situation? You've Found A Large Site Which Is Currently Empty And The LandownerReceives No Income From It.

Primary PowerPlays: The Storage Millionaire The Car Park Option

Secondary PowerPlays: The Quick Land Value Creator The Development Option The JV Profit Builder Build To Keep Option

Other Possible Combinations: The Storage Millionaire The Quick Land Value Creator The JV Profit Builder The Development Option

The Car Park Option The Quick Land Value Creator The JV Profit Builder Build To Keep Option


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Quick Reference

What Is The Situation? Your Vendor Wants To Give You A Long-Term Lease But Without The Option ToBuy

Primary PowerPlays: The Guaranteed Rental Scheme

Secondary PowerPlays:



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Quick Reference

What Is The Situation? You Have A Retiring Landlord Who Wants To Sell His Portfolio.

Primary PowerPlays: The Portfolio Split Option The Instant Portfolio Stacker

Secondary PowerPlays: Repackaged Portfolios



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Quick Reference

What Is The Situation? Your Vendor Wants To Sell The Property Now. He Does Not Want To Give AnOption.

Primary PowerPlays: No Money Down Option

Secondary PowerPlays: The Trust Deed Option



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Quick Reference

What Is The Situation? You Come Across A Development Of Apartments In A City Centre That No-OneWants. What Do You Do?

Primary PowerPlays: The Virtual Hotel Option

Secondary PowerPlays: The Sandwich Option No Money Down Option The Equity Split Option The Portfolio Split Option Repackaged Portfolios

Other Possible Combinations: The Virtual Hotel Option The Sandwich Option Repackaged Portfolios


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Quick Reference

What Is The Situation? You Have An Option That's Due To Expire & You Can't Get A Mortgage Right Now.What Do You Do?

Primary PowerPlays: Supermum Option

Secondary PowerPlays: The Trust Deed Option No Money Down Option



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Quick Reference

What Is The Situation? You Have A Piece Of Land That Is Refused Planning Permission To Develop IntoFlats

Primary PowerPlays: The Storage Millionaire

Secondary PowerPlays: The Car Park Option



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Quick Reference

What Is The Situation? You Have A Property That Needs Work

Primary PowerPlays: The Sweat Equity Option

Secondary PowerPlays: The Option Flip The Ugly Duckling The Yin Yang Option The Sale Option The Option Swap

Other Possible Combinations: The Sweat Equity Option The Option Swap The Builder's Bum Option The Ugly Duckling

The Option Swap The Yin Yang Option The Sweat Equity Option


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Quick Reference

What Is The Situation? Your Seller Is Only Willing To Allow You A Short Option Contract (i.e. 6-9 months)

Primary PowerPlays: The Option Flip

Secondary PowerPlays: The Ugly Duckling The Commercial Option Flip The Builder's Bum Option The Option Lead Flip

Other Possible Combinations: The Ugly Duckling The Builder's Bum Option

The Option Flip The Option Lead Flip


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Quick Reference

What Is The Situation? Your Seller Wants Some Money Upfront Right Now

Primary PowerPlays: The Vendor Double Dip Option

Secondary PowerPlays: The Managed Option Contract The Sale Option The Instalment Contract



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5 Lease Option PowerPlays The Managed Option Contract Page 28 of 68

Option PowerPlay 2 : The Managed Option ContractThe Managed Option Contract

Situation Where This Strategy Can Be Used

Someone calls you with a problem. They have a 3-bed semi-detached that has been on the marketfor over a year and all the while theyve been making the mortgage payments on it. They moved out

of the house 6 months ago having recently separated from each other.

Your sellers have already bought other houses, but can no longer afford to make mortgage

payments on both houses. Its just way too much for them. Theyre extremely frustrated and areconsidering handing the keys back to the bank!

This scenario calls for you the investor to take over the mortgage payments on this property andagree to buy the house from the seller at a fixed price any time within the next 10 years.

During that time the market may have doubled. So in 10 years time youd have the option to buythis house for 50% of its market value THEN. In the meantime you could rent out the house at aprofit as the monthly mortgage payments are much lower than the rent achievable on this property.

Other investors would walk away from this opportunity, leaving you to pick up great properties in

great areas that have fallen 20%-25% in value from their peak, rent out at a profit & buy theproperty on the cheap in 10 years time.

This calls for the Managed Option Contract (the MOC)

Lets see how this all fits together: -

Step 1 : How To Source Deal

Note that here the seller is motivated by the fact that they just cant sell the property, so theyre

stuck paying the mortgage on a property they no longer want. They may not have significant equityin the property for a 30% Below Market Value deal and so they have very limited options.

You can find these motivated sellers by :-

Many of the sourcing mechanisms highlighted in Volume 2: Section 5 are relevant:

Leaflet advertising

Court repossession lists

Estate agents


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Internet advertising etc

Responding To Newspapers Ads

Tired Landlords

(Full details of sourcing available in Volume 2: Section 5 )

Step 2 : Value The Deal Properly

The property would be valued by using our 16 Step Valuation Process as highlighted in Volume 2:Section 7.

Step 3 : Check Out The Deal Properly

Use the checklist in the check out the deal section this is very important in this strategy especially

the following sections.

1. Whose name is on title?It is important to make sure you are dealing with the actual owners of the property, and alsothat you are dealing with all owners. So, for, example if the husband and wife are both onthe title deeds then make sure you get them both to sign the heads of terms.

2. Which company has the mortgage?This is important since you should know which mortgage company you are dealing with asyou may need to get consent to let from them.

3. What is the amount left on the mortgage?You need to make sure that this amount is less than the price you agree to buy the propertyfrom them for.

4. Any early redemption penalties?Check to see if there are any early redemption penalties. You would normally want to runthese down before exercising your option.

5. Any arrears on the property?These would need to be taken into consideration as well.

6. Any other secured loans on property?This is very important and is often missed by investors . Any other loans secured against theproperty would also need to be cleared when you exercise your option so the total forredeeming all loans and mortgages and restrictions would need to be less than the purchaseprice of the option.

7. Any other restrictions?Check to see if there are any other restrictions on the property.

8. Total amount owing on property less than the purchase price in the option?Make sure that the purchase price in the option is able to pay off all the loans outstandingand any restrictions on the property. Otherwise you will not be able to exercise the optionsince you will not be able to remove all the loans from the title register.


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9. Seller not bankrupt?Check that the seller is not bankrupt. This can be done by running a bankruptcy search. Alsocheck that he is not about to be declared bankrupt as this would complicate your option. It isoften advisable to get a Debt Management Company that specialises in and understandslease options for example Express Money Solutions to put your client into a debt plan of some sort.

10. Property in flood zone?Make sure that the property is not in a flood zone as otherwise you will find it difficult to getinsurance and to get a mortgage if you decide to buy later on.

As with any problem there is also an opportunity and it may be possible to get properties onoptions with the intent of just getting cash flow each month so long as you can get someinsurance, even if it is very high or has a very high excess.

11. Use Upmystreet and other property portals to check if property area is ok.Remember property investing is all about location, location, location. This is very importantto the long term value of the property, and these property portals allow you to check localinformation about the area such as the crime rate, unemployment rate and many otherfactors.

12. Carry out searchesWe would recommend you always carry out searches on the property, and this is vital if youare either paying a large option fee or carrying out a lot of refurbishment works on theproperty.

13. Do a background check on propertyIt is worth doing background checks on the property itself. It may be cheap becausesomething has happened at the property, maybe someone was kille d in the property or itshaunted. This may have an adverse affect on the value of the property.

14. Is the property mortgageable?Make sure the property is of traditional construction and therefore mortgageable. Manyproperties have been built using non-standard construction. Although in the past it wouldhave been possible to obtain mortgages, you would struggle to find a lender for these now.

15. Are there any unsecured loans?Although strictly this is not a problem on the deal, if you do not look at all the finances of your seller, you may find that they become bankrupt and this would have some impact onyour option. Many of the PowerPlays here mitigate this but it would be better to get the

seller onto a debt plan with a debt management company that fully understands the processof options for example Express Money Solutions.

Step 4: Negotiate The Deal & Get Signed Heads Of Terms

Use the checklist in the Negotiating Section. Special reference is made to the following as they arespecific to this PowerPlay.

Purchase Price Of PropertyRemember that this needs to be a price that will be more than all the redemption figures and any

debt owed by the sellers that are registered on the property. There is simply no point in you


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negotiating an amount lower than the redemption figures as the seller will not be able to sell thehouse unless they have other money that they can use to pay off some of the loans.

SECRET TIP: Convince the seller that they should pay at least the next mortgage payment while thelegal process goes through. That should give you enough time to put a tenant into the property.

Price Of Option (Option Fee )1

Length Of The Option TermMake sure you get a minimum term of 5 years (preferably 7 years, ideally 10 years). You are hopingfor the market to increase over time to allow the property to appreciate before you buy theproperty. The longer the option period the more likely the property will appreciate in value andhence the greater the profit. You will also have more options for your exit strategy.

Right To Extend The Option AgreementYou will keep the right to extend the option for another year by making a further payment of perhaps 1k. You will keep paying the monthly repayments to the lender.

Right To Assign The Option AgreementThis needs to be there otherwise you cannot sell on your option and thus the property.

Right To Enter The PropertyMake sure you have the right to enter property to show potential tenants before the option isgranted.

Right To Place A Restriction On The Property With The Land RegistryMake sure your solicitors register a restriction for the option with the land registry.

Buildings InsuranceYou will want to add your name to the sellers building insurance and also ensure that the buildingsinsurance covers you letting the property out to the kinds of tenants that you want to rent to.

Step 5 How To Find A TenantUse a lettings agency to find a tenant. Find a lettings agency that advertises on Rightmove, but alsodont forget Primelocation, Property Finder, FindAProperty, Globrix & Zoopla.

SECRET TIP: Get the property advertised on Gumtree or Vivastreet in order to find a good tenant.

An Example With The Numbers.

Assumptions

In this example the cost of the option is 1!


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Market Value 100,000

Total Mortgage: 90,000

Option Purchase Price of Property 90,000

Price of Option 1

Current Mortgage 300 per calendar month

Market Rent 550

Length Of The Option Agreement 10 Years

Right To Extend The Option Agreement 1 Year

Estimated Value In 10 Years 200,000

Upfront Profit 0

Cashflow During Option Term 550 rent - 300 mortgage = 250 pcm

X 12 months = 3,000 per annum

X 10 years = 30,000

Back End Profit 200,000 new value

- 90,000 purchase price= 110,000 profit

Total Profit 110,000 + 30,000 = 140,000

As can be seen from the example above, a profit of 250 per calendar month is made and the totalcost of money put into the deal was 1. The total profit here is 140k, which is not bad for aproperty that all the other investors walked away from.

The Managed Option Contract forms the basis to lease options in the UK and as you have seen, thisPowerPlay alone would earn you over 100,000 in profit.


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Be sure to use the QuickRef to look at how to use this strategy with some of the other PowerPlays.

Although the 5 PowerPlays presented here are magic, imagine what you could do with all 51

PowerPlays at your disposal in terms of the deals you could structure! How much cash would theynet you? What combinations of PowerPlays could you thread together to become a truly maverickproperty investor.

Imagine how much more successful you ll be when you buy the full 51 Property Option PowerPlays the 500 page 2 Volume Advanced Technical Manual for the full set of nuances and flavours thatyou can implement to extract the maximum cash out of your property deals.




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Strategy 2

The Managed Option ContractHEADS OF TERMSGrant of an Option to Investor by Owner

Owner s Name: Mr John Smith and Mrs Mary Smith

Investor s Name: Mr Mark Moneymaker

Property Address:12 Market Road, Manchester, M1 2AB

Purchase Price: 90,000.00

Owner s correspondence address if different from the above: N/A

Owner to be legally represented: Y

If yes, provide details of Solicitors acting: TBC

Option Period: 120 months

Estimated Start Date: in 2 weeks time

Investor to pay Owner any fee to the Seller: 1.00 once

Amount payable to Owner s Mortgage Lender per month: whatever the monthly mortgage payments are - currently 300.00 pcm

Amount payable to Owner s Mortgage Lender: 90,000.00 ..

Amount payable to Owner s Buildings Insurer: 150.00

Payable to Owner s Second Lender: N/A

Payable to Mgt Company: N/A

Owner s Mortgage Lender Name: Natwest Bank

Account No: A01235689


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Address: 1 Natwest House, East Lane, London, NW11 2AB

Owner s Second Lender s Name: ............. Account No: _____________

Address: ___________________________________________________

Owner s Third Lender s Name: ........... Account No: _____________

Address: ___________________________________________________

Building Insurer Name: _______________________ Policy No:_________________

Address: ___________________________________________________

Mgt Company (if Leasehold): ____________________________________________

Address: ___________________________________________________

Terms of PaymentAny other period payment to be made to Owner everyweek/month/year

Any extra term: right to extend option for a further 12 months, extension fee =1,000.00

_____________________________________ _____________________________________

Signed by Owner Signed by Investor

Date:_________________ Date:________________


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5 Lease Option PowerPlays The Ugly Duckling Page 36 of 68

Option PowerPlay 3 : The Ugly Duckling Using An Option To Buy An Unmortgageable Property (non-structural)


A se ller calls you wanting to sell a house theyve inherited that theyve been trying to sell formonths. Theyre a little embarrassed as the house needs a lot of work and they cant see whyanybody would want the house, or want to do the work. They dont wa nt the property, or theproblem they just want to get rid of it and bring closure to this chapter of their lives.

When you see the property, the first thing you see is that nobody could live there. Although theseller had correctly described the prop erty as needing a lick of paint, you see, critically that there isno kitchen or bathroom. Although the house may not be in any need of structural work, the factthat there is no kitchen or bathroom means the property is unmortgageable and that explains why ithasnt sold for so long.

What this does is to severely restrict the number of buyers able to take on this challenge. If theseller were to put the property on the market with an estate agent, the estate agent would sell itthrough one of their investor friends. The lack of bank finance limits the sale ability of this propertyto only investors with cash, investors able to borrow hard money, or residential buyers with cash who also like doing up properties.

However, the best idea here is for you to take a short option to buy the property with the right tocarry out works during the option period. The seller will pay the mortgage in the meantime (if thereis one) and you will do the property up and then sell it. You might have to offer to pay the mortgagepayments but if this is a probate property, the payments may be minimal. The beauty abouttransforming this ugly duckling is that you will be able to control the property with very little of yourown money and then sell it at a much higher price due to the increased value of the property.

What we love about these types of properties is that you can add value to the sellers lives and alsoadd value to the property for maximum profit.

Note that in order to achieve the best price you will have to use an aggressive marketing campaign,and stage the property for sale which is different to just renting the property out. These are thetwo beauties of this PowerPlay:-

1. Usually you would not be able to buy the property and sell it within 6 months as the Councilof Mortgage Lenders (CML) stipulate that the previous owner must have owned theproperty for 6 months. Using an option agreement, the previous owner would have stillowned it for 6 months, as it would be the original vendor selling directly to the buyer, underyour instructions, giving you no problems when selling the property on. The 6 months ruledoesnt apply if the sellers have inherited the property.

2. You will sell the property at a much higher price having never owned it.


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You can make a lot of cash in a short amount of time using this PowerPlay. In addition, your sellerwill be delighted as you have taken their problem away from them!

Lets see how this breaks down: -


Note that here the seller is motivated by the fact that they have a problem property they could dowithout. They consider the state of the property leaves them with quite limited options.



Leaflet advertisingCourt repossession listsEstate agentsInternet advertising etc Tired Landlords



The property would be valued by using our 16 Step Valuation Process as highlighted in Volume 2:Section 7 .


Use the checklist in the check out the deal section this is very important in this strategy especiallythe following sections.

1. Whose name is on title?It is important to make sure you are dealing with the actual owners of the property, and also

that you are dealing with all owners. So, for, example if the husband and wife are both onthe title deeds then make sure you get them both to sign the heads of terms.



4. Any early redemption penalties?Check to see if there are any early redemption penalties. You would normally want to run

these down before exercising your option.


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6. Any other secured loans on property?

This is very important and is often missed by investors . Any other loans secured against theproperty would also need to be cleared when you exercise your option so the total forredeeming all loans and mortgages and restrictions would need to be less than the purchaseprice of the option.








13. Do a background check on propertyIt is worth doing background checks on the property itself. It may be cheap becausesomething has happened at the property, maybe someone was killed in the property or itshaunted. This may have an adverse affect on the value of the property.



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15. Are there any unsecured loans?Although strictly this is not a problem on the deal, if you do not look at all the finances of your seller, you may find that they become bankrupt and this would have some impact onyour option. Many of the PowerPlays here mitigate this but it would be better to get theseller onto a debt plan with a debt management company that fully understands the processof options for example Express Money Solutions.


Use the checklist in the Negotiating section, special reference is made to the following as they arespecific to this strategy.

Purchase Price Of PropertyRemember that this needs to be a price that will be more than all the redemption figures. There isno point in you negotiating lower than the redemption figures as the seller will not be able to sellthe house unless they have other money that they can use to pay off some of the loans. Make sureyou take into consideration all the costs for refurbishing the house and all selling costs i.e. estateagents/solicitors.

SECRET TIP: In addition to carrying out the refurbishment, do stage the house for sale as thisdramatically increases the wow-factor when sellers come to look around the house. You wantpotential buyers to feel they are already living there, so put out towels in the bathroom, toilet paperin the toilet, set places at the kitchen table as if they are already living there. Make sure the front of the house is inviting people in!

Price Of The Option (Option Fee) Try to set this as low as possible (1) by saying that you will be refurbishing it for them! So if youdecide not to go ahead with the purchase then they have a house in better condition that is worth alot more.

Length Of The Option Term.Make sure you get at least 9 months as it will take 2-3 months to do the work and then 6 months tosell it.

Right To Extend The Option AgreementWe keep the right to extend the option for another 6 months by making a further payment, forinstance this could be 1,000.

Right To Assign The Option AgreementThis needs to be there otherwise you cannot sell on your option and thus the property if this is whatyou choose to do.

Right To Enter The PropertyMake sure you have the right to enter property to show potential buyers.

Right To Place A Restriction On The Property With The Land Registry.Make sure you register the option with Land Registry as you will be spending a significant amount of money doing the property up!


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Buildings InsuranceYou should take out new policy insurance on this property to protect yourself as you will spend

10,000 doing it up.

Step 5 How To Find A Buyer

For this type of option it is easiest to sell the house through estate agents, I would also give thefollowing incentives:-

Sell at a slight discount to market value Offer a 5% vendor s gifted deposit. Offer to pay the stamp duty (if applicable)

Refer to Volume 2: Section 8 on Marketing Your Property for full details.

SECRET TIP: Offer other incentives to your buyer. Offer to pay their solicitor s fees and their removalcosts as these incentives do not need to be reported to the bank and they are mortgage-friendly.

SECRET TIP: When selling, offer the estate agent an incentive so that if they manage to sell for theamount you want and completion happens within 2 months, then they will get an extra 500, and if completion happens after, they will just receive their normal selling commission.

SECRET TIP: Get the builder to finance the refurb in exchange for a higher fee when the propertysells. Doing things this way you will have virtually no upfront fees.


AssumptionsIn this example the cost of the option is 1!

Market Value (pre-refurb) N/A

Option Purchase Price Of Property 140,000

Market Value (post-refurb) 210,000

Price Of Option 1

Length Of The Option Agreement 9 months


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Right To Extend The Option Agreement 6 months

Selling Price 200,000

Refurbishment Cost 10,000

Upfront: 0

During: 0

Back End: 200,000 New Value - 10,000 refurb

- 140,000 Purchase Price

= 50,000Total Profit: 50,000

As can be seen from the example above, a profit of 50,000 is made before tax and the total cost of money put into the deal was 1 (plus the 10,000 for the refurb). This doesnt take into account thecapital appreciation of the property.

This is a perfect example of being able to earn a good yearly income from just 1 deal within 6months. You could put 20% of the profit in to fund your marketing budget for a whole year nettinglots more jaw-dropping deals and locking in lots more profit.


Although the 5 PowerPlays presented here are magic, imagine what you could do with all 51PowerPlays at your disposal in terms of the deals you could structure! How much cash would theynet you? What combinations of PowerPlays could you thread together to become a truly maverickproperty investor.

Imagine how much more successful youd be when you purchase the full 51 Lease OptionPowerPlays the 500 page 2 Volume Advanced Technical Manual . For the full set of nuances and

flavours that you can implement to extract the maximum cash out of your property deals.




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Strategy 3

The Ugly Duckling HEADS OF TERMS

Grant of an Option to Investor by Owner

Owner s Name(s): Mr John Smith and Mrs Mary Smith


Property Address: 12 Market Road, Manchester, M1 2AB


Owner s correspondence address if different to the above: N/A


If yes, provide details of Solicitors acting or TBC: TBC ..



Investor to pay Owner any fee to the Seller: 1.00 once

Amount payable to Owner s Mortgage Lender per month: N/A



Payable to Owner Second Lender: N/A


Owner s Mortgage Lender s Name: Natwest Bank Account No: A01235689



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Address: ___________________________________________________


Address: ___________________________________________________

Buildings Insurer s Name: _______________________ Policy No:_________________

Address: ___________________________________________________


Address: ___________________________________________________



_____________________________________ _____________________________________


Date:_________________ Date:________________


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5 Lease Option PowerPlays The Divide & Conquer PowerPlay Page 44 of 68

Option PowerPlay 6 : Divide & Conquer Using An Option To Buy, Split The Garden and Get PlanningPermission To Build Another House


You have a seller who owns a 3-Bed Detached house on a corner plot with gardens to the back andside of it. When you go to see the property you realise that there is enough land to build at leasttwo more 3-Bed semi-detached houses to the side of the house.

The seller knows that the land to the side is attractive to an investor. The key thing here is that

many developers or investors may not be willing to build right now as we are not at that point in theproperty cycle that features a rapidly rising market. However, there is still the opportunity to use anoption to make a lot of cash in a very short space of time.

Using the Divide & Conquer Option gives you control over the whole plot of land and this strategy isanother classic PowerPlay.

Having made preliminary enquiries with the planning department to ensure that they wouldntnecessarily rule out giving planning permission, you will take the property on an option. The sellerwill stay in the house and continue to pay the mortgage this will give you 3 months to get outlineplanning permission to build the two 3-bed semis in the back garden.

On gaining planning permission, you will then split the title with the original house on one title andthe land with the planning permission on the other.

You will then sell the house to a normal buyer and sell the land with planning permission to adeveloper.

Lets explore how this all works: -


The seller may or may not be heavily motivated. What drives this deal for you is the value that youcan add to the property rather than the price that you are able to secure the property for (althoughthis is still important).



Leaflet advertisingEstate agents


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The property would be valued by using our 16 Step Valuation Process as highlighted in Volume 2:Section 7.

There are a few things that you will need to look out for. Of course you will need to check values of 3-bed semi detached houses that are similar to the ones that you intend to get outline planningpermission for. This defines what this plot is worth to a potential developer.

You will need to look out for the building line for the road around the corner. You will need to

ensure that the water mains do not cross the plot for which you are intending to get planningpermission.

Lets assume the property is worth 200,000. The seller has been trying to sell for some timeunsuccessfully and so you manage to secure an option agreement on this property for 175,000.

Having already made preliminary enquiries with the planning department to ensure that theywouldnt necessarily rule out g iving planning permission, you decide to take on the option. Theseller would stay in the house and continue to pay the mortgage and you would spend 3 monthsgetting outline planning permission to build two 3-bed semis each worth 150,000.

Each plot of land for each house with planning permission would then be worth 50,000 (each). Youwould sell the existing house to anybody for just 150,000 a loss of 25,000. But since you wouldmake 100,000 for the plots of land with planning permission, overall you would make a profit of 75,000.


Use the chec klist in the check out the deal section this is very important in this strategy especiallythe following sections.





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13. Do a background check on propertyIt is worth doing background checks on the property itself. It may be cheap becausesomething has happened at the property, maybe someone was killed in the property or itshaunted. This may have an adverse affect on the value of the property.


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15. Are there any unsecured loans?Although strictly this is not a problem on the deal, if you do not look at all the finances of your seller, you may find that they become bankrupt and this would have some impact onyour option. Many of the PowerPlays here mitigate this but it would be better to get theseller onto a debt plan with a debt management company that fully understands the processof options for example Express Money Solutions.


Use the checklist in the Negotiating Section. Special reference is made to the following as they arespecific to this strategy.

Purchase Price Of PropertyRemember that this needs to be a price that will be more than all the redemption figures. There isno point in you negotiating lower than the redemption figures as the seller wont be able to sell thehouse unless they have other money that they can use to pay off some of the loans.

Price Of The Option (Option Fee) Try to set this to as low as possible (1) as there will be a cost to gaining outline planning permission.

Length Of The Option TermMake sure you get 12 months at the very minimum and try to negotiate a 6 month extension as itwill take 3-6 months to get planning permission and another 6 months to sell the assets on.

Right to Extend The Option AgreementAs above try to negotiate a 6 month extension.

Right To Assign The Option AgreementYou will not be assigning the option agreement.

Right To Enter The Property

You may need access to sell the house to investors/first time buyers.

Right To Place Restriction On Property With The Land Registry.If you are paying any significant amount for the option fee make sure you register the option withthe Land Registry.

Step 5 How To Find a Buyer

SECRET TIP: You can post your plots on www.plotfinder.com in order to sell it to a developer.
http://www.plotfinder.com/http://www.plotfinder.com/


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House Buyer: Market Through an Estate AgentOffer Incentives To The Buyers To Buy

Plot Buyers: Local Small DevelopersPlot Websites/ Self Build Magazines


Assumption:In this example the cost of the option is 1!


Mortgage 150,000


Price Of Option 1



Stamp Duty There is no stamp duty to pay.

Upfront Profit: 0

Profit During The Option Term: Purchase Price Of House: 175,000

- Sale Of House: 150,000 = -25,000

Subtotal: -25,000

Plus:Sale Of Plot 1: 50,000Sale Of Plot 2: 50,000Subtotal: 100,000

Minus loss on the house: ( -25,000)= 75,000

Total Profit: 75,000


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This is another example of a PowerPlay where you stand to make 75,000 within 6 months of havingdone actually very little at all!



Imagine how much more successful you ll be when you purchase the full 51 Lease OptionPowerPlays the 500 page 2 Volume Advanced Technical Manual for the full set of nuances andflavours that you can implement to extract the maximum cash out of your property deals.




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Strategy 6Divide & Conquer PowerPlay

HEADS OF TERMSGrant of an Option to Investor by Owner

Owner s Names: Mr John Smith and Mrs Mary Smith


Property Address: 12 Market Road, Manchester, M1 2AB


Owner s correspondence address if different to the above: N/A





Investor to pay Owner a fee: 1.00 once

Amount payable to Owner s Mortgage Lender per month: N/A


Amount payable to Owner s Buildings Insurer: N/A




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Owners Mortgage Lender s Name: Natwest Bank Account No: A01235689



Address: ___________________________________________________


Address: ___________________________________________________

Buildings Insurer s Name: _______________________ Policy No:_________________

Address: ___________________________________________________


Address: ___________________________________________________



_____________________________________ _____________________________________


Date:_________________ Date:________________


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5 Lease Option PowerPlays The Slice & Dice Pension Plan PowerPlay Page 52 of 68

Option PowerPlay 45 : The Slice & Dice Pension PlanUsing An Option To Buy, Split Property Into Flats And Get AProperty Mortgage Free


You have stumbled across a large property double-fronted Victorian house and are scratching yourhead about what you could do with it. The owner of the property is unable to sell for much less thanthe market value of the house. The house is worth 200k and their mortgage is 160k and they willneed 25k to walk away with.

As you are looking at the house you are trying to work out how to get the highest and best use out

of this house. You are aware that somehow it is possible to split but are not so enthused about theprospect of turning it into a House Of Multiple Occupancy (HMO). You are also aware, based on LHArents, that the LHA PowerPlay is not worthwhile.

What you could do with this type of property is to split it into a number of flats. The combined valueof these flats would be much more than the value of the house on its own.

So what you will do here is to get an option on the house, get planning permission to convert thehouse into flats, convert the house into flats, create a freehold for the house and leaseholds for eachflat, and then sell each flat on. However, there is a twist in the way that you do things here thatturns this idea into the Pension Plan PowerPlay. You will then keep with the freehold which you will

keep on a long term basis.

The way this strategy works is as follows. You would follow these steps :-

1. Get an option on the property for at least 12 monthsCheck with the local council duty planner to see if they would allow you to split the houseinto flats. There may be restrictions in place in that area.

2. Get planning permission to convert into flatsGet a good architect to draw plans. R emember its not just the house as you also have tothink about parking issues etc. but your architect will be able to help with that.

3. Do the conversionGet a builder to do the conversion and convert into apartments.

4. Find buyersFind buyers and sell the properties on.

5. Create the leases & exercise the optionGet all the completions to take place on the same day with you buying the house from theseller and at the same time then selling on the new flats to the buyers.


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Lets see how this all plays out: -


The seller is motivated by the fact that they cannot reduce the asking price of the property anyfurther because of the mortgage on the property and the monthly mortgage is hurting them.



Leaflets advertisingCourt repossession listsEstate agents


(Full details of sourcing avai lable in Volume 2: Section 5 )


The property would be valued by using our 16 Step Valuation Process as highlighted in Volume 2:Section 7 .

Please note that here you will need to value the property as a house first of all to satisfy yourself asto the equity (if any) left in the house. Then you will need to check the market value of flats andapartments in the local area. Only then will you be able to ascertain whether the conversion willstack up (and whether you will be able to borrow the money to carry out the conversion).

For example in this area a double-fronted Victorian 4 bed semi-detached house is worth 200,000.You manage to source the property at 185,000 on an option agreement so you have the right tobuy this property for 185,000. You see that you can convert the house into four 1-bedroom flats ata cost of 10,000 per flat. So the total conversion will cost 40,000. The flats are then worth100,000 each.


Use the checklist in the check out the deal section this is very important in this strategy especiallythe following sections.



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As with any problem there is also an opportunity and it may be possible to get properties on

options with the intent of just getting cash flow each month so long as you can get someinsurance, even if it is very high or has a very high excess.


12. Carry out searchesWe would recommend you always carry out searches on the property, and this is vital if you


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are either paying a large option fee or carrying out a lot of refurbishment works on theproperty.

13. Do a background check on property

It is worth doing background checks on the property itself. It may be cheap becausesomething has happened at the property, maybe someone was killed in the property o r itshaunted. This may have an adverse affect on the value of the property.


15. Are there any unsecured loans?Although strictly this is not a problem on the deal, if you do not look at all the finances of your seller, you may find that they become bankrupt and this would have some impact on

your option. Many of the PowerPlays here mitigate this but it would be better to get theseller onto a debt plan with a debt management company that fully understands the processof options for example Express Money Solutions.


Use the checklist in the Negotiating Section. Special reference is made to the following as they arespecific to this strategy.

Purchase Price Of Property

Remember that this needs to be a price that will be more than all the redemption figures. There isno point in you negotiating lower than this as the seller will not be able to sell the house unless theyhave other money that they can use to pay of some off the loans. Make sure you take intoconsideration all the costs for refurbishing the house and all selling costs i.e. estate agents/solicitors.

Price Of Option (Option fee) Try to set this as low as possible (1) as you will still spend 40,000 converting the property. Theproperty has no real value to anyone so the minimum option payment should be achievable.

Length Of The Option Agreement.Make sure you get 12 months at the very minimum but try to negotiate a 6 month extension as it

will take 3-6 months to do the work and you will want time to sell the flats on.

Right To Extend The Option AgreementAs above try to negotiate a 6 month extension.

Right To Assign The Option AgreementYou will not be assigning the option agreement.

Right To Enter The PropertyMake sure you have the right to enter the property to carry out the development.


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Right To Place Restriction On Property With The Land Registry.You will be spending a significant amount on the refurbishment and therefore should have arestriction placed on the land registry

Step 5 How To Find Buyers

You will be selling these flats on once they have been created . You can sell off plan to buyers so thatas soon as they are ready you can complete.

You should use some of the basic incentives to help sell the flats:-- Give a 5% discount- Pay any stamp duty if applicable- Carpet property

- Removal costs- Part exchange with their existing house .


AssumptionIn this example the cost of the option is 1!



Price Of Option 1



Upfront: 0

Development: 10,000 x 4 flats = 40,000

Plans = 3.000

Total = 43,000


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Estate Agents: 4,000

Solicitors Costs: 5,000

Total selling price of flats 400,000 (100,000*4flats)

Total cost of purchase 185,000 Purchase Price

+ 40,000 Development Costs

+5,000 Legal Fees

+4,000 Estate Agents

+3,000 Plans

+ 4,000 Mortgage Payments (10 months)

= 240,000

Total Profit 400,000-240,000= 160,000

Still Own Freehold

250 Ground Rent x 4 = 1,000 p.a.

Freehold Value = 20,000

Total Profit: 160,000+20,000=180,000

So here, for simply spotting an opportunity and executing it well, youve been able to create180,000 of profit within 12 months. Here you may have had to project manage the conversions,

but by anybodys calculations 18 0,000 profit on a single residential property worth 200,000 thatyouve never owned is an amazing profit.



Imagine how much more successful you ll be when you purchase the full 51 Lease Option

PowerPlays the 500 page 2 Volume Advanced Technical Manual for the full set of nuances andflavours that you can implement to extract the maximum cash out of your property deals.




58/68



Strategy 45

The Slice & Dice Pension PlanHEADS OF TERMSGrant of an Option to Investor by Owner

Owners Name(s): Mr John Smith and Mrs Mary Smith


Property Address:12 Market Road, Manchester, M1 2AB


Owner s correspondence address if different from the above: N/A





Investor to pay Owner a Fee: 1.00 once

Amount payable to Owner s Mortgage Lender per month: whatever the monthly mortgage payments are:currently 400.00 pcm






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Owners Mortgage Lender s Name: Natwest Bank Account No: A01235689



Address: ___________________________________________________


Address: ___________________________________________________

Building s Insurer s Name: _______________________ Policy No:_________________

Address: ___________________________________________________


Address: ___________________________________________________



_____________________________________ _____________________________________


Date:_________________ Date:________________


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5 Lease Option PowerPlays The Storage Millionaire Page 60 of 68

Option PowerPlay 26 : The Storage Millionaire

Using A Lease Option Over Land And Rent It Out As AContainer Site


You have a site that is a brownfield site that has either been previously redeveloped or perhapspreviously used for industrial or commercial purposes. You have identified that because of thefuture plans for this town, this land will be an important strategic piece of land to own, even if it isnot worthwhile developing right now.

Currently there are lots of sites around the country where owners have got planning permission tobuild apartments, but because of the downturn in the market, developers are not interested inbuilding right now.

This is just part of the natural cyclical trend of property. What you want to do is to control this pieceof land with an option to buy at todays prices and then sell or build on it in a few years time whenthe market has recovered.

So heres the big question: H ow do you hold this land for those intervening years while you wait forthe property market to recover? There are a number of PowerPlays you can use for example thecarparking strategy but one of our favourites is The Storage Millionaire.

The essence of The Storage Millionaire is that you get good income from the land for the next 3 or 4years and then when the market recovers you either build or sell on the land to a developer. So youget cash flow now and you hopefully get potentially massive profits in the future too.

The site you are looking for would generally be large, an acre or more but it could be smaller. Itwould generally be a vacant land site although it could also be a derelict building with a large carpark.

Firstly, you would get an option over the land for the next 5-7 years minimum at close to todaysmarket value. You would also get a lease over the property for the same period of time, which willallow you to rent the property from the owner. You should be able to get this for very little relativeto the size of that land as it currently of no real use to anyone else.

You will then get planning permission to use the site for self storage containers (these are shippingcontainers that you see on the back of trucks everywhere). The reason for this is that they are cheapto buy or rent and when you sell on the site in the future you can sell the containers on very easily.

Words of caution: be aware that planning permission only lasts for 5 years currently and so you mayneed to think about selling or extending the planning on the site for the development within thattime frame.


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5 Lease Option PowerPlays The Sto

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