Have you ever heard or even been guilty of saying “you need money to make money”? and what about “I don’t have enough money for that” or “when I’m rich I’ll buy that”.
Well, would you be interested in knowing you could start a property portfolio with just £1.
Table of Contents
- Property Sourcing
- What do you need for this type of deal?
- Why would a Seller Agree to this?
- Who are potential buyers?
- How to Invest in Property for Just £1
There are lots of people who would like to sell a property but can’t find a buyer and vice versa there are people who would like to buy property but don’t have the income or the credit rating to do so. You can act as a sourcer of property or as the middleman either with a buyer in mind or buying the property for yourself. It costs just £1 to complete a contract between yourself and the seller to act on their behalf to sell the property either fairly quickly or at some specific time in the future.
Example 1 – I have control over a property on which I have the right to buy it at any time within the next 8 years. The property is 3 bedrooms end terraced, and tenanted with a regular income from the property. A letting agent manages the property and under the agreement, between the seller and myself, I pay the seller a fee each month on the property. The fee covers the seller’s mortgage and gives them a little something in their pocket. The remaining income from the rent is my profit. The cost of doing this deal was £1 to make the contract legal and the time put into negotiating with the seller. The deal is a win/win for both the seller and myself.
Example 2 – I have another property with the right to buy the property in 10 years. This deal was put together by a property sourcer. The deal is similar to example 1, where the seller receives a payment which covers the mortgage and a little something for themselves. I have an agent who manages the property and the remaining income from the rent is profit. The only difference with this deal is I paid a sourcing fee for the deal. This was a win/win/win deal. Win for the seller who wanted to sell but couldn’t due to certain circumstances. A win for me as I have control over a property I don’t yet own but which generates income for me. It’s a win as I can purchase the property at any time in the next 10 years. A win for the property sourcer as he earned a commission for putting the deal together.
Property sourcing is about talking to the seller, solving a problem they have and then finding a potential buyer.
What do you need for this type of deal?
For hundreds of years businesses have used the right to lease land or property. A lease is frequently used with builders and supermarkets. Traditionally, they will ask a landowner to give them the right to purchase the land sometime in the future in exchange for a small fee paid to the landowner either monthly, quarterly or annually. The builder or supermarket does this so they can get planning permission approvals without the cost of buying the land and then having to sell if they fail in their planning application.
The same principle is used to acquire property to buy at a future date. This is known as a lease option. It gives the owner of the lease the right to control the property as if they owned it. It also gives them the right to buy the property for a pre-agreed price sometime in the future. If the potential buyer is unable to buy the property for any reason or simply decides the property is not suitable to them, they walk away from the deal at the end of the term or when ever there are break clauses in the contract.
The seller, on the other hand, has an agreement to sell the property some time in the future for an agreed price. They no longer have any responsibility for the property other than the mortgage payments. The owner of the lease will pay the seller a monthly fee to cover the mortgage payments (if there is a mortgage) and they will generally also receive a little something for themselves as a commission for the use of their property. If the property does not sell within the agreed period the seller knows the property will come back to them or they can renegotiate the deal for an extended time.
The only thing needed to complete this deal is a Lease Option Agreement and the exchange of money to make the contract legal. There is £1 between the negotiator (sourcer) and the seller. There is a commission between the negotiator and the buyer. If they are the same person then the property deal has cost just £1.
Why would a Seller Agree to this?
There are a variety of reasons why sellers would be open to a Lease Option.
- It could be that the property is in negative equity and they can’t sell for current market prices. A deal done on a 10 year lease allows the property to go up in value and the seller to sell the property and cover their costs.
- It could be that the seller has been unable to sell the property but has another deal in place for a new property. Putting the property on a lease option means they no longer have responsibility for the property as that passes to the option holder and the seller is free to move to their new property
- Marriage breakups are often a source for lease options. Neither party want the responsibility of the property but it isn’t selling so a lease option takes the burden off their shoulders and allows a deal to go through at a later date.
- The seller may think they have sold their property but the deal fall through and they don’t want the burden of looking after it
There are any number of reasons why a seller will be happy to use a lease option and sell at a future date.
Who are potential buyers?
The most common type of buyers are property investors who want to quickly build a property portfolio without the hassle of having mortgages. A second source is someone who would like to buy a property but doesn’t have the credit rating to be able to purchase a property. Both these types of purchases are good a looking after the property and are most likely to complete the purchase at a later date.
How to Invest in Property for Just £1
Lease Options are a great way to get into property as an investor or as a buyer. If you source the property deals yourself then you could purchase the deal for only £1. If you buy from a property sourcer then be prepared to pay a commission for the deal. The commission is based on around a percentage of the property value. The higher the value the higher the fee you can expect to pay.