This week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people. Control a property for profit from as little as a pound or sell it on for several thousands of pounds instead. Hear about the ‘sophisticated property investor’ who is receiving constant and specific education to open up opportunities on so many different levels.
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Resources mentioned:
Enter the term ‘lease options’ into YouTube and then watch some of the video training that appears there.
To receive David France’s Lease Options Manual, just send him an email quoting the word manual and referencing The Property Voice to: sales@fastcompletion.com or Facebook: https://www.facebook.com/david.france.16144
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Today’s must do’s
If you like the idea of lease options for yourself or as an additional income stream, then I would suggest you connect with David and ask him about his experience and a copy of his lease options manual whilst you are at it.
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Transcription of the show
Hello and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.
Last week we heard from Tom Appleton, an investor that built a property portfolio using lease options as the main commercial strategy. This week we hear from David France, who in addition to being an investor himself has gone on to develop a significant business in sourcing creative packaged deals for other investors.
So, this week, we can look at lease options as a vehicle for our own property investing purposes and from the perspective of developing an additional income stream by packaging them up for other people.
As you will hear in a minute, David shares an awful lot very valuable information on the marketing and structuring side of this creative strategy, so let’s have a listen to that right now.
Richard: So, welcome back to The Property Voice and our series on creative financing in property and I’m glad to be joined by David France today. David, hi, how are you?
David: Hi Richard, yes, I am very well thank you. How are you?
Richard: Very well, thank you. So, just to set the scene a bit for everyone, we are in the middle of a series, we are talking about creative financing in property and there are a number of ways of achieving this sort of leverage of other peoples’ money, creative financing. And, one of those ways is lease options, to be fair today, we have had a chat off air, we have already had someone on the show who is involved in lease options, who is sourcing their own deals primarily and has built up a modest portfolio for doing that but, David, I’m going to ask you to give us a bit of background about yourself, you kind of straddle the investor side and also the deal source or packaging side as well. It would be great to get your insights from both sides of that fence. Why don’t you maybe kick us off, and give us a brief introduction into yourself and your background and your specialist knowledge in this area? That would be useful.
David: Yeah, sure thing. Thanks for that Richard. So, yeah, basically, I have become a creative property broker, packaging deals and selling them on to property investors, I started off as a Joiner when I left school and started my own business after a few years of employment, then as Richard just pointed out, I started off on the other side of the fence as an investor, then I realised—I had this misconception you needed lots of money to get into property, and obviously it’s just not the case. I actually went about it all the wrong way, buying properties unseen, I actually bought a property in America, bought a property on a lease option in the UK. And then by the time I had done that I had two properties, I had pretty much run out of money. So, I thought to myself, there must be, ways to get extra cash, and the cash flow just wasn’t good enough to enable me to leave work. So, then I looked at the person I had bought some of these deals from, and they had made £5 or £6000, I think I paid for one of these lease options for example, and realised that was, the key really. Becoming a property broker, the work they had put into it was literally a few hours work into that one deal. So, then I started looking into that, it peaked my interest and then I started getting involved brokering these property deals. Since then, between then and when I just mentioned, what I do now; creative property broker, I have successfully completed on over 100 property transactions to date, most of those, I’d say 90% of them have all been creative in a sense of them being Lease Options or Instalment Contracts or Seller Finance type deals. So, that’s kind of a little bit of background on me and also, it’s worth mentioning as well, all of these deals I have done, I have probably only met…out of all the deals, 5% of the sellers or buyers in this case. A lot of the time it’s just done remotely from where I live. Obviously, we set up meetings now and again, get our days out of the office, meet investors and things. But, most of the time, it’s all done just over the phone or on the internet, so I can literally do this from anywhere. So, that’s a little bit about myself Richard…
Richard: Yeah, thanks for that. And there is lots of interesting things there, that we could pick out. Obviously, I have framed this particular conversation around Lease Options. But you are quite right in talking about creative financing strategies generally. Probably later on I want to get into, there might be alternatives, but, if we just start with Lease Options for a minute. By the way, I really like your mobile lifestyle, you know, opportunity there, we will maybe talk a little bit about that as well. But, if we just talk about Lease Options in general, because that was the main thrust for this. I might take it in a different direction later. How would you explain what Lease Options are in general terms simplistically?
David: Simplistically, I would just say, you are controlling an asset you don’t own and creating a profit from it. So, you are controlling property just with some bits of paper and able to profit from those assets, without having to put in the usual 25% deposit for Buy to Let mortgages. And also, taking on a massive debt load. So, you are simply just controlling assets and usually the term, that we have all heard is ‘Buy a house for a £1’ obviously, it’s not quite correct, you are not actually buying it for a pound, £1 has to go down as an Option Consideration, which makes the makes the Option Contracts live. So, you can literally, have anything from a £1 upwards on that contract to make them live. Just a quick example, some of the Lease Options that we do, we are doing a few at the moment, constantly got deals in the pipeline. The Vendor has agreed he wants a chunk of money for a business he is starting, and we have decided to pay him £5000 Option Considerations, £5000 per property. So, we are taking a few properties from him, and obviously, we work it up from a…we sit down with the numbers and work out our break-even point. So, we look to get our money back within one year of the actual cash flow. And obviously, I can give you some examples of how we make the cash flow from those assets. Would you like me to do that now Richard?
Richard: Yeah, that would be great. I was going to ask you; how do you structure deals generally? I guess there is a bit of flexibility but, I’d be really keen to understand how they work, for some real examples of what you are doing right now, how they work and how the numbers flow, that would be great.
David: Yeah, well I would love to stand here and just say to you that there was just one bit of paper that says…do this for the Lease Options, it’s just not the case. Unfortunately, it’s a mix of negotiation, but ultimately it comes down to the seller that we are actually dealing with. I used to think it was about the properties but it really is a people business and if you take the property out the equation, for a second, and you imagine virtually we are sat around a coffee table with the owner and asking them a few key questions, and usually our marketing, we can come on to this later, some of the marketing but our marketing is geared around finding property, so we are in negative equity situations. So, when we are getting these deals, we look at all the numbers, how much somebody owes on the properties, versus how much the mortgage payment is every month. And usually, we are looking for favourable mortgage conditions, so, we are looking for low interest rates ideally. I mean, obviously, in an ideal world we want loads of cash flow, loads of equity, and all that kind of stuff. The reality is we don’t always get all of that, and it’s a bit of a balancing act, and it’s about finding something that is fair for the owner and works for either us as the investors, because I am investor as well, I have a portfolio of these Lease Options, I do practice what I preach and I do have some mortgages on properties and things like that. So, it’s important when you are putting these transactions together, and we are looking at who our ultimate buyer is for these transactions, we are standing in the middle. A lot of these deals, we will trade them on because they are not in our target areas, not areas we particularly invest in. So, we just trade them on, stand in the middle and take a fee for doing that. So, regarding the structures, we really are kind of, completely different on each scale but to give a rough example of a deal…that is a deal, they need to be net cash flow and at least around about £200 a month for them to be a deal. Plus, I just mentioned these one that were taken on personally for our portfolio, they are actually net cash flow, £300 per month per property. And, we are putting £5000 into these properties and you have already got tenants in, and the owner, like I say, we always find out what the owner is trying to achieve by asking a few key questions, because they all say we need the money right now, they want to sell the properties but everyone cash bit, everyone has got a debt bit. And you usually find out what that cash bit is. Sometimes, there isn’t even a cash bit because, they are in negative equity, but they usually have got a problem that needs solving. And that problem can be something like relocation for example, we get a lot of people looking to relocate overseas, or down South, and they are always looking to buy right away. So, if they are going to rent somewhere, you can offer simply on the Option Agreement, rather than putting a £1 you may agree with them to cover the first months’ rent in advance, the first month is deposit and that goes down as the Option Consideration. So, you have paid them something. Plus, as well, when we are putting these deals together, you have got to be ethical and fair and you have got to make sure that whilst it sounds brilliant that you are buying properties for a £1, if any of these Lease Options get contested in the court in the future, you can actually say to the court, well actually, when we sat down virtually, over the coffee table negotiating these deals, or these transactions, we found out what their needs where. They were relocating at the time, we offered to pay their rent in advance, we got them what they wanted. We feel we didn’t take advantage of them, and they were represented by a solicitor, which is an absolute must, the sellers must always be represented by a solicitor. With all that in mind, makes a combination of a really good deal, and as I said, a minimum of £200 a month cash flow, and obviously, we are looking for these deals as creative deals and how we can get the maximum return out of them for investors. Obviously, there is a lot of strategies that just come about, more mainstream recently, such as, you know Rent to Rent and even though they have been around hundreds of years, they have obviously become more mainstream and public because of the courses that are coming out and obviously Serviced Accommodation. So, if we come across some Lease Options, say for instance some them we have come across that maybe only break even, in cash flow, most people think, you can walk away, you can’t help the seller. But we have got things like the tenant buyer model, so we can put a tenant buyer in the property and make a cash flow on it. Or, we can turn that property into Serviced Accommodation and charge by the night and get a nightly rate on that property. Obviously, we haven’t got a lot of time to go into detail into these strategies at gas. But it’s just looking at maximum ways of…and also the HMO strategy as well, renting by the rooms etc.
Richard: Yeah I mean think, we have got two sides of the equation, we have got the deal structure with the owner of the property, then if you are talking from the investor point of view, what are we as, an investor, going to do with that property, once we have taken control of it, to use your words…so, on the owner side, you have got things like…ok, you are going to pay them a Lease Payment, which is effectively a Rental Payment over time of the agreement. You are going to pay them an Option fee upfront which is giving them a right to buy that property in the future. And then you are going to agree a purchase price at some stage in the future but you are going to write it down today. So, they are the three main components I guess, aren’t they?
David: They are so flexible Richard, and one very key point I must get across to people that don’t understand Lease Options is, right to buy but not the obligation, you are not obligated to buy the property. Now, obviously, you can turn a Lease Option to exchange of delay on completion, formerly known as an NEDC, and our business. And you can do that, but you become committed to buying a property, contract exchange from day 1 and Stamp Duty is payable and all the nasty little charges that come on top and unnecessary searches etc. a Lease Option is extremely flexible and can be applied to anything from land to commercial units, to residential. They are very common in the commercial sector anyway and that’s where they have deferred from anyway.
Richard: Yeah, the sort of Land Option idea, make an offer, try and get planning permission, if you get the planning permission you go ahead and buy the property. Yeah, that kind of thing. Similar principal. But, you have got the relationship with the Vendor, I think it’s really important what you said as well, it’s not a property type of emphasis, it’s a seller requirement emphasis…I think a lot of people miss that. You said you are solving problems, finding solutions, there might be a property problem at the heart of it, I think I seen one just recently, about fire damage to a property or something like that. But I guess the Vendor didn’t have the money for whatever reason to put right the repair work that was required. Probably didn’t have insurance I expect, but the problem was they didn’t have the money. So, you also mentioned, you talked about exchange with delay completion, but I’m really interested in what the variations of a Lease Option might be? I don’t know want to get over complicated but you mention exchange and delay completion which is distinct on Lease Option but there is a lot of common principals, what are those variations? I guess you have got to talk it, haven’t you, when you go and talk to a Vendor? Talk us through that, talk it a little bit…
David: Yeah, well the talk it comprises of all these little creative strategies that we have, like you say, I’m not that clever I haven’t made these up, these are all that have been implemented and what I have learned from going on multiple courses and just constantly educating myself, we are talking books and audio books, YouTube, everything like that. So, all this has added to my knowledge and my toolbox that I can use and implemented into these transactions and to help people with their property and that’s all it literally is. It’s just helping people with their properties. So, some of the tools in the tool box, we would only implement based on a certain strategy. Now, the first things we look for is the numbers, so is there an equity, sort of spread in the property, the difference between if there is a mortgage on it and the market value. If there is, that’s one little box that we…we don’t pigeon hole anything, I mean just quickly on that point, a lot of people say, I want to do Lease Options, that’s all I want to do. Just Lease Options, well that’s the wrong way of looking at it. The leads that we get in determine whether it’s a Lease Option. Or whether it’s an exchange and delay on completion or whether its…as well just on that point, if we come across a lead from Scotland for example, you can actually legally do Lease Options in Scotland, because The Law Society don’t recognise the agreement and whatnot and you can’t put the restrictions on the title, the same as you can in the England. So, you have to do an exchange and delay in completion. Then it becomes a buy in sale, so in that case if you get a lead, you know straight away you can’t do a Lease Option there, that is an EDC and exchange and delay in completion. So, that’s how you differentiate and you pull out the tool box, the right tool for that job. So, we are constantly ratcheting through our toolbox, pulling out all the spanners and seeing what fits, really. And usually, a lot of the deals we come across is because of our marketing, have got no equity, and if they haven’t got equity, there is very little choice of what we can do, manoeuvrability. So, we can position ourselves and say look, you have got a mortgage on the property, how about if we or one of our partners, because again we never tell people, we are going to sell you property on for £3-5000 and we make a big chunky broker fee or anything like that, obviously. So, we always say to them, having a conversation with them, keeping it light hearted, and just asking certain questions to get certain answers from them. So, we can decide which kind of offer to put forward to them, and they don’t always agree to it but if they have got motivation, and they have to be motivated sellers or it’s not going to work with us. We can put a solution together to solve their problem, so usually its babysitting their mortgage until they are ready to buy it, we use that type of terminology, your Mrs Jones down the street, but if you are speaking to someone in our type of business, we come across a lot of landlords, and they already know what Lease Options are, so you can talk on the same level as them. And you can actually go into the complexities if you need to. Just to give them confidence that we know what we are talking about.
Richard: Ok. So, we have got exchange and delay on completion and clearly that has to work in Scotland, from what you have said. You got the Lease Option, I guess you could have some sort of Instalment Contract, type of idea as well, where you pay for it over time, so the variations would be subtle, but distinct. You know, variations of the same theme, you take control of the property today, but to some extent you are deferring when you are actually buying it. Whether it’s a lump sum with exchange and delay on completion, whether its and, indeed a Lease Option or whether its payment over time with some sort of Instalment Contract. These are some of the tools and techniques you could use, I am faming it Lease Options but you could end up re-structuring it as one of the other types, depending on circumstances. That fair enough?
David: Yeah absolutely. I mean, a quick point on that, we do a lot of deals overseas on creative terms as well. The ones in Spain for example, the owners are literally ready just to give the keys to somebody, they usually want to give them to the bank, but we say, rather than giving them to the bank, give them to us or one of our partners to take control of it and then we structure a deal and usually they end up being Instalment Contracts. And the reason why, just very briefly, a lot of them are incombered, so we do come across some with mortgages but a lot of them have been bought with cash and the owners have come back to the UK, decided they don’t want them anymore and we can usually agree favourable terms for somebody, just to spread the balance over a set period of time and then they own it at the end. So usually it’s just a broker fee payable which is my £5000, that’s a usual typical deal fee, and then legal fees and to cover the legal fees, the buyer does, they take control of the asset, pay the monthly instalment, usually for 120-180 months’ and they at the end of that term, they would just apply for the title to be transferred into their name. Obviously, there’s various, depending on what country you are dealing with, there is various protection levels you can put in place to ensure you have got the protection over the properties and the security that you need. Because you are paying the Vendor the instalment every month. So, that’s how we get creative, and we look at different ways of helping people. And again, we have got specialist solicitors that we refer to, we have got one in Spain that’s very good, we have got one in America, we have got one in Canada, you know, globally really.
Richard: Yeah, I mean, you touch on a point there, I will probably drill down into what are the sort of, best practices and things to watch out over but, having a solicitor involved is definitely one of the keys I think. Thanks for that explanation, I talk about Lease Options but actually you may be end up structuring a different lead depending on circumstances. In terms of Lease Options themselves, I think it’s still a big opportunity at the moment, when you talk about things like negative equity, as the market improves, maybe peoples’ equity position improves as well. Is it still as good an opportunity as an investor right now, then perhaps it was 4 years ago?
David: Yeah, that’s a really good question, Richard. Only time will tell, but all the time, if you look in the press, there is negativity everywhere. We have just gone through Brexit, and there is still turmoil and people in chaos about it all. There is lots of opportunity about right now, right now for example, I don’t know where we are going to be in a few years’ time, even if the market does improve there is still a lot of people in quite deep negative equity. Places like Liverpool and also the North East, where people are in massive negative equity, so even when prices do rise, they are just breaking even. Even on that point, that’s getting very deep into economics and all that kind of stuff, so, the real point I think it’s there is always going to be motivated sellers out there. There is always going to be a reason why someone wants to get rid of a property but can’t sell it in the conventional way. So, if you imagine a property that’s got no bathroom and kitchen, obviously not mortgageable by a mortgage company, you can step in, take control of that asset, with your £1 Option Agreement if you would, and depending on the sellers’ situation, you could agree to do that property up, and then get a mortgage, x it out, exercise your Option, and buy that property with a mortgage and you have created some value. This is how you can get creative with these types of deals. But to answer your question, I don’t know where we are going to be in 5-10 years’ time, right now, Options work very well, but there is always going to be, I just personally feel, there is always going to be a need for this type of transaction, it’s always going to be very handy. But this is just one strategy we are using anyway, we deal in other markets as well.so, if it dried up in the UK, we would shift our focus to a different market, where there are more motivated sellers. But, even then there are still strategies that we are implementing like, Serviced Accommodation, Rent to Rent, that type of thing really. There is always an opportunity. And because we are just a small organisation, we can move with the times, if there are drastic market changes, we can adapt ourselves, re-educated ourselves and re-position ourselves. But, if we are too big and rigid, I know some of the big B&B companies, when all they were doing was B&B back in the rising market, and then went out of business because they just didn’t how to adapt. Whereas if you can, just find out what the seller is trying to achieve and get them that the best way possible, then take a fee for doing that, we just quite quickly, carved a bit of a niche for ourselves. And again, it’s not something I have developed, it’s something that has been around for a long time, and I have just got educated on, and it’s important that you get educated on these systems and the way they are structured. There is obviously, some pitfalls to these types of things, and you are probably going to be asking me about that shortly…
Richard: You are reading my mind…thanks for explaining that. I think that being flexible as property investors, is a big takeaway there and I think it’s good to focus when you are starting out. But, have a degree of flexibility and be prepared to change direction as circumstances present themselves. Which you alluded to quite a bit. I agree with you totally. Let’s just talk a little bit about marketing, I’m curious to know, how do you find these sellers, that’s what we are talking about really, you finding the sellers. How do you go about finding these sellers that, particularly for Lease Options? I do take the point that its prescriptive, it could end up being Instalment Contract, it could end up being exchange and delay on completion.
David: Yeah, ok, just a quick point on that, as you know, I’m doing UK and overseas property transactions now. I obviously can’t market to the world, I would go broke, it would cost too much to do. So, because we have got such a niche, we are able to find people through very niche type strategies. So, a lot of the time, we are using your Gumtrees, they are very popular, but, interestingly enough, if we are using Gumtree for the overseas side of things, no one is doing it because no one knows how to put these deals together, people are limited in belief, they just think well, you can’t help overseas seller, we are working in the UK, I don’t know how that would work legally and all that kind of stuff. The build it all up and they just never do it. So, that’s really good for us, because we are able to capitalise on these type of opportunities, lots of people looking to offload their property overseas. And again, the UK ones, again we are still hitting classifieds because you see lots of people giving it a go in this business and I say that in inverted commas, because all they do is come in, give it a go, they maybe give it a go for a month or two, and contact sellers and say it didn’t work, I didn’t get a deal or whatever, but you have constantly got to be taking appropriate action and constantly speaking to sellers but also making offers as well. We have got a process with making the offers, we make them verbally, in an email and if we have got a correspondence address, we usually send them a letter in the post as well. So, it’s a bit of a system to it now, and a lot more focused. So, going back to the marketing side, we use online, offline. When we have got a patch and we have got a patch to work on, we currently hit Liverpool, North Liverpool, a certain area within an area, because if you pick out an area, say Birmingham for example, your current market in Birmingham, you would have to pick certain demographics and obviously we have got a certain criteria to hit, that makes a patch a patch for us, because we know based on property value, that is a yield, rental yield. What we will stack and type of equity level are in those properties because, you can check my registry for the peak of the market and what kind of values people are paying. So, able to determine what areas to focus on, to market to, and then we are doing the boards that everyone has seen, they work, we do handwritten letters to properties that are up for sale, we scrape data lists that we get, we have got some software that produces scraped data lists and we are able to send handwritten letters to those addresses, that gets a really good response rate. We also do something called a three-letter campaign, I learned this from a YouTube video, that one of my friends had done. I implemented it into my business and that’s been working really well. Property is up for sale, and you send them a series of three letters, and the theory behind it is they are receiving contact form you three times, and you are giving each time as well. I mean, you are giving them value by, I won’t go proper into the detail of the letters but, its designed just to keep it short and to the point and let them know that we are property buyers and that we are looking to buy in that area. And you would be surprised how many leads we get form that type of strategy as well. And there are things like leaflets, people say leaflets don’t work, that’s rubbish, they do work, you have got to be very targeted with your leaflets though. If people do the scattergun approach, 10000 leaflets to 10000 homes, you will go bust very quickly. If you concentrate on a few thousand properties and hit those properties consistently. And I think the marketing approach behind it is they have to receive a leaflet 5 or 6 times before they start responding. So, we are just doing everything, very targeted fashion, and certainly not diluted, it has to be very concentrated in a specific area, and we are implementing the on-patch kind of marketing. But, obviously, we are doing a lot of stuff remotely as well. So, we have got a website that brings in leads, we have got some good connections with some of the big, property company, like B&B companies and they supply us with leads, with JV and if we can turn them into deals. And all types of things like that, so we are not just relying on one marketing channel, you have got to have multiple marketing channel to bring leads in. Paper adverts work as well, if they are done in the right papers. So, that works well. We have got some certain magazines, I’m not going to tell you which they are because, they are working really well for us. So, we have got some magazines we advertise in, the pull in some pretty, we call them, high value leads, because we work on a lot of portfolios, and quite comfortable dealing with the big portfolios now, and you can obviously generate very good income from trading portfolios. Just quickly on that point. You have just got one seller, and say 50 properties, you haven’t got to convince 50 lots of people to sell their property in this particular way, so if you get a portfolio, its economy to scale, and everything is just basically amplified, and so are our fees, which is important as well.
Richard: You know David, normally I would be saying we probably need to keep a little bit of focus on time, but I was just so happy to let you carry on and explain all those different marketing routes and channels, that you have just outlined. I think it’s really valuable, helpful information. And that’s why I was just quiet in the background, and like, yeah that’s a good point. So, we might end up with a longer recording than probably anticipated, but I’m thinking the value is great. So, I really do appreciate it. But I do have to keep an eye on it, I’m sure people will reach out to you to talk a bit more about it. You straddle both sides of the fence as we talked about earlier, one as an investor yourself and one as a deal broker. If I try and think about it, put myself in your shoes, because I am not totally in your shoes, but the elements that you have got, not necessarily you, but people who can find their own deals, they could use an outsourced packager, like yourself, who find deals for you. Alternatively you could be you, just find deals, keep some and sell some on. So, you have a few different angles that you can get involved with the Lease Option and similar types of strategy. How would you suggest people go about considering what’s going to work for them, what the drivers are, what the considerations are?
David: Yeah, well there is going to be a few factors that come into play there, depends how much people have got to invest in a business to start with, because, even though it’s a very low cost business and it’s one of the quickest ways to get revenue in very quickly, large amounts of cash. But, you still need to put money into marketing and things like that. So, I think some of the key points to people deciding whether to keep them or trade them is; again, it depends where you are based, I’m up in the North West, a lot of properties up in this particular area, do tend to work very well, for Lease Options. If you are in the South of England or London, yeah, you know people ask me can you still do deals in London? Yes, you can still motivated sellers in London. But it depends what you are trying to achieve. If you are trying to get £10000 a month trading deals, you would need to be focusing on some of the negative equity locations, to trade some of these types of deals. If you are looking to build a portfolio, with some capital appreciation, potentially in the future—just a quick point on that as well. We have seen a massive value in the Lease Option in the longevity of the Option. So, you can obviously agree a Lease Option for a week or something, but some of my Lease Options are like 23 years left on the mortgage, so we try and get them for as long as possible, because there is real longevity in the Option. If house prices rise in that period, we get the benefit, we can exercise our Option, or we can trade that Option Agreement on for a fee. So, we are just trading a bit of paper for a very chunky fee. There are different ways you can do it, we have seen the value of the length of the Option. So, just going back to your question, trying to differentiate why you would be a trader, or an investor or both. It’s down to the individual, do they want to be a landlord? I leverage with letting agents, I definitely don’t like dealing with tenants, I definitely don’t like doing jobs on properties. Even though I done it all when I started doing them. Even my one in America, me and my wife, we hired a car, did a road trip from New York to LA, and on the way across we stopped at the property, I’d never actually seen it, we went to the home depot that was here, we bought some tiles and started fixing it all up. It was a bit crazy really. The tenants had left a right mess to it. So, I thought well I’m here, we have got a few days to spare, let’s just get on and get it done. I’m a joiner by trade, by background, so I’m quite used to getting stuck in and doing jobs anyway. So, we actually did some jobs while we were there. So, you have just got to decide, what do you really want to do? And nowadays, I don’t touch any of the properties, I try and do everything hands off if I can. In the marketing for tenant buyers, I know we haven’t really covered that strategy, but just a bit of an extension to Lease Options, if we are doing things like that, we have got companies that we use. A good friend of mine is a letting agent, and he puts it up on Rightmove, they deal with the enquiries and they put these tenant buyers in the property and wait for the completion and collect for the fee at the end. So, there is different ways, you just have to think about what you are trying to achieve, are you trying to achieve short-term cash so you can leave your job now? Which I would recommend packaging deals. If you are trying to build up a long term residual passive income and everyone wants passive, everyone talks about passive but you just got to think, do you really want this passive income, because; just a quick point on that, everyone in this industry that I’ve come across, I’ve said why you getting into this, oh I just want to leave my job, I want live on the beach, I want to travel the world, but I think people are missing a big point. You have got to be passionate about whatever you do. I’m very passionate about property, I’m passionate about helping people succeed, and you usually find I work more hours now than I ever did when I was a joiner and it’s because I actually love it and helping people. And whilst I have got a good passive income from my properties I just keep adding to the portfolio, and just let the passive income roll over really and just keep re-investing it. But, I wouldn’t really think about just giving up what I do, I could probably do that and just live off some of the income, but I don’t really think about doing that, because I enjoy what I do. And if I stop enjoying what I do, then I need to find what I am passionate about and start following my passion. I know I went slightly off on a bit of a tangent there, but I just wanted to explain that. I think people don’t really know what they want.
Richard: I have come across this sort of thing, it’s really just working out what you want, what your end game is, I call it Some Day Goal, but if that’s a short-term income replacement then things like buy a deal packaging can work quite well. To be clear, it is kind of a job, or a business, it’s very active in other words. Even if you outsource a lot of the work, you have still got to manage that and talk to people. You also talked about passive income, which you probably get over the period of a Lease Option. I think the other ingredient that’s probably appealing, is wealth creation, or asset building. It’s a low-cost way of building assets, because you don’t have to pay for them until some point in the future. So, I think that the other dimension, you can still use it for a long-term wealth creation strategy, particularly if you haven’t got that much money to start with. If you don’t really need the money until it could be quite a good idea then, as well I think, to build a portfolio or have elements of your portfolio which are Lease Options, let’s put it that way.
David: Just a quick point on that Richard, most people, the traditional investors of this world, obviously old way of doing things, whereas people putting a 25% deposit, and then leverage bank finance at 75%, and then make maybe £200 a month and then you have got a £100k property, everyone uses that example, you have got £25000 in that property and money has ran out now, you had that £25 grand, it’s gone, it’s in that property , you are only getting £200 a month, if you leverage that £25 grand and put it into a sourcing business like I’m doing, you could actually buy a portfolio, for £25 grand and it would probably produce, you could probably buy 5 or 6 properties, from a source like myself, pay me my full fee and get in £6,7 or 800 pounds a month, the end the result is the same but you are actually getting more from that asset. And, ok, you don’t own it, but you don’t own them anyway, the banks own them. So, it’s controlling your assets anyway. so, its huge leverage is Lease Option. Massive leverage and you can just consistently keep building upon that. But, the new wave of investors, sophisticated investors, are constantly educating ourselves, new strategies coming out all the time. You have got to be careful not to implement too much, because each one if a different kind of marketing strategy.
Richard: We are talking a lot about the sort of upsides and the wins, but I have got to ask you, hand on heart, what are the potential risks, or things to watch out for with this type of strategy? What should people be aware of there?
David: I’m glad you mentioned that because it’s not all, as good as everyone makes out. What can happen is if you take a property under control and a sellers about to go bankrupt or something like that, they may well have creditors that try and come after some of their assets in the future, whereas if you have got good solid paperwork, done by a solicitor, that’s lodged at Land Registry with a (inaudible) restriction, that basically means that you have got a claim, hopefully, if there is any equity, then it draws out any equity, if you have got the right paperwork, but you need to make sure that you paperwork is done properly. Because there is a potential, it could happen that if somebody did go bankrupt, and people came after their assets, the banks have obviously got first charge on the properties, they could just snatch those properties back, put them through an auction and you have just…but this is the thing you have got to think about, if we are looking at our rate on return, or our ROI, we are looking to get, me personally, I’m looking to get my money back after the first year. A lot of my investors will look to get their money back after 2 years, obviously, I have got my broker fee to cover, yes, they have got to pay me. They can take me out the equation but they have got to do all the work themselves, so they can decide what they want to do, everything has a cost, either time or money. And some people prefer to, the clever people realise that paying with money is better paying with time, because you actually buy more time then. But anyway, so yeah, that’s a really good point. On the risk side, if someone goes bankrupt, potentially it could jeopardise your Option on the property, but you have got to decide how much you have got in that property, is that property going to get repossessed straight away, as soon as you take it on, you know possibly not. Obviously, it depends on that particular sellers’ situation, there will be a process it all goes through, and you might even be able to…we use letters of authority which allow us to deal with the lender on the owners’ behalf. So, we are fully aware before we take a property on, the financial state it is in, are the over leveraged, are they being truthful with us regarding all the figures, we confirm the mortgage product, the redemption figure, everything like that. So, we put a lot of safeguards in place prior to taking them on, but there is still that element of risk, like anything, there is always a risk, but I’d rather this kind of risk than having massive amounts of debt in my own name and then something going wrong where the lender calls the loan in because you have breech their mortgage terms and conditions by running it as a Serviced Accommodation and you shouldn’t have, or something like that. Then potentially, I don’t want to open a can of worms, when I say that, I know Serviced Accommodation is waivered along for the moment, but we won’t go into that. But, I will say they are the kind of risks that could jeopardise these properties, so with Lease Options, I personally think they are very low-risk compared to every other type of strategy.
Richard: Yeah, I am glad you pointed out some of these things, because we are talking about creative financing and we are talking about all the upsides and low cash in, leverage, deferred payment, they are very, very appealing. But, bottom line is, with it being a creative strategy, it’s also to some extent, an advanced property strategy. And, you need to have an awareness of all the potential risks and be able to have systems in place that help manage this. You talk about bankruptcy, the reality is, not that many people actually go bankrupt, more likely, is they might fall into arrears on a mortgage and have that property repossessed. So, repossessions probably happen more than bankruptcy. But, you can take steps to protect yourself from repossession, more than bankruptcy. For example, if you are making payments directly to the lender, or you confirm that they have been made, that lender is not likely to step in for non-payment issues. And, manage that risk there, but for bankruptcy, if they go off and do whatever they want and become bankrupt then it’s very hard to actually control that. But, it’s equally not super common. Bankruptcy is a kind of last resort for a lot of people.
David: Yeah absolutely. I think you have mentioned a really good point there. We always recommend people pay the lender direct. Obviously minimises anyone mis-spending any money, especially if you have got a vendor who is clearly not able to handle money properly. You have got to be able to take a proper view on it, the common practice for it, is to pay a lender direct, you just get the account numbers and send the funds over every month to pay that mortgage. So, you are actually protecting yourself that way by doing that. And, like you say, if the mortgage is getting paid, why would the lender repossess that property? Its only if the payments fall into arrears, then they are going to start looking at the property.
Richard: Thanks for your frankness. I guess I have just got a mind now on drawing us to a close, there’s a couple of things I just wanted to ask. First of all, you have talked about education books and other resources, any particular resource that you might recommend that our listeners go and find, that’s helped you, particularly in the area of Lease Options, and similar types?
David: Yeah, well, Lease Options in particular, there is obviously quite a few, I have got a manual that I can give away as a resource, I’m happy to give that away which goes into the nuts and bolts of Lease Options. But, a lot of the time, there is just so much information out there, sometimes you are a little overwhelmed because of the information. There are webinars every other week on all these strategies. If you are into really Lease Options, people wanting to do it, then YouTube, just put in Lease Options, and just start educating yourself. There are lots of webinars and things that will really help you do some deals. Books wise, I mean I have read the Rich Dad, Poor Dad, the 4 Hour Work Weeks, and if you just take little bits out of these books yourself, obviously taking some of it with a pinch of salt, because some of it is airy fairy kind of stuff, but just drawing some of this stuff out of books. But, some other things actually, at helping me actually, I’m working with a Business Coach, my mindset is, I didn’t realise how important that is in business, and I have been working on mindsets, watching a lot of Grant Cardone videos, Brendon Burchard, he is very good, on productivity and just managing your time, and planning things. So, there is lots of resources out there, I’m just constantly educating myself, on these, on everything really. Just constantly improving my mindset and everything like that.
Richard: Well, I think that is a takeaway, I think you used the phrase very early on in the conversation, constant education. I would say, for anyone involved in property, I would definitely recommend constant education. And this podcast is an example of that. Equally, I think specific education, so you just talked about, go to YouTube, put in Lease Options and watch a bunch of videos around subject Lease Options. So, a great takeaway. You mentioned the manual, is that something that you can make available to listeners of The Property Voice?
David: Yeah, absolutely yeah. The manual, it doesn’t cover any of my overseas stuff currently, that’s kind of, a little bit separately. But the Lease Option one incorporates marketing techniques, negotiating techniques, direct to vendor techniques, all these different types of things. Everything from packaging it, finding the deals to selling them to an end user, to an investor, how to put property brochures together and present them to investors. So, the whole thing is kind of there, loads of people can go out there and get the information, but people have trouble implementing it, because they need somebody there, usually to hold their hand through transactions. You are going to come up against the stumbling blocks from time to time but, be happy to make that available to all your listeners.
Richard: What’s it called?
David: Just kept it simple, it’s The Lease Options and Deal Packaging Manual.
Richard: I think we will just say Manual and if people can reference The Property Voice, and then how do they get hold of you to get hold of the manual, David?
David: Well I can obviously send it by email, sometimes I send attachments via Facebook, so if people are adding me on Facebook, I can just ping them one over by Facebook. In fact, that seems to be a lot quicker than email these days, just sending files digitally via Facebook and things like that. So, yeah happy to do that via email, Facebook, Skype, whatever.
Richard: What’s your email David?
David: You can send emails to sales@fastcompletion.com
Richard: I just wanted you to say, because some people just listen to this in a place where they can’t write things down but they can remember it. But we have show notes, so I will make sure all these links are in the show notes so people can get a hold of you. But just to clarify, if you want David France manual on Lease Options, just either Facebook him which he quite likes by the sound of it, or we have got the email, sales@fastcompletion.com and I’m sure that it will go from there. But, I just want to wrap up really and say thanks so much, I have deliberately let the conversation flow, because you just letting out so many nuggets of information and I think that’s really, really helpful to our audience, I really appreciate it David, thanks so much.
David: No problem at all, that’s fine and thanks for taking the time out to record the call.
Richard: No worries at all, I’m sure we will be speaking to you and I might even grab a copy of that manual myself!
David: Haha! Ok, brilliant, cheers Richard
Richard: You take care, bye-bye
Property Chatter
Interview with Subject Matter Expert: David France.
Resources mentioned:
Enter the term ‘lease options’ into YouTube and then watch some of the video training that appears there.
To receive David France’s Lease Options Manual, just send him an email quoting the word manual and referencing The Property Voice to: sales@fastcompletion.com
In addition to potentially controlling a property for as little as a pound, David also talked about the potential to develop a business or additional income stream by finding and packaging deals up for other investors. Under our R-I-G-H-T property strategy model these would be H – handling other people’s property and I – investor services to earn fees from a related property activity. It is clear these two strategies and revenue streams could be run side-by-side as well, just as he does.
David stressed the point of constant education as Tom did last week and we also discussed the idea of specific education as well. This was very well illustrated when he talked about lease options not being recognised and so enforceable in Scotland for example.
David did highlight some of the potential pitfalls with the strategy and that’s fair enough as we should all be aware of the risks and drawbacks as well as the potential upsides in any property strategy.
Lease options may suit people in negative equity, however, as we discussed it is not the only situation where it could be a tool in the toolbox that we could use. Quite rightly, David mentioned finding solutions to the problems a property owner has rather than being prescriptive in that solution. That could lead to the right solution being an exchange with delayed completion or an instalment contract as just two potential creative financing solutions that we could deploy in substitution to a lease option. So, becoming effective at understanding a property owner’s problem and motivation is at the heart of this type of strategy, which may involve a lease option one day and another solution the next.
Finally, David raised the point of the sophisticated property investor. That’s people like you who listen to podcasts and other educational material like this. You see, labelling us as landlords really can be a bit misleading at times, when you consider all of the different permutations and structures that we could become involved with. The last time I counted up the number of different property strategies, it was a number in the forties. Some claim it could be as high as a hundred…that’s an awful lot of sophistication! Many of the advanced property people, myself included, have added multiple strategies to the armoury over time for a balanced portfolio, not only in terms of asset and tenant type, but also in terms of commercial and financial structure too.
Let’s walk before we start to run though and leave this point there for now…although I rather suspect it may recur when we do a wrap up at the end of this series…
I am sure you will have found David’s knowledge on the subject of lease options to be sound and helpful. Don’t forget to get in touch with him if you want a copy of the lease options manual that he mentioned either. His contacts are in the show notes, or just drop me a line and I will put you in touch. Just mention The Property Voice when you do as it always helps our guests know where you heard them.
Right, that’s enough from me this week. We take the creative financing discussion onto another level next week when we talk about one of the current buzzword strategies…rent-to-rent, so let’s look forward to lifting the lid on that then shall we?
As always, email me personally if you want to talk about anything from today’s show or more generally in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net
Other than that, I would just like to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.