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in this video I'm going to debunk and explode some of the myths surrounding lease option agreements I'm gonna explain why lease option agreements are not a great strategy for inexperienced new investors seeking to do no money down property investing and I'm also going to share with you my four criteria for making sure lease options work for you my name is Ranjan Bhattacharya I've been investing in property for over 30 years and welcome to my channel if you're new here make sure you subscribe and smash that Bell icon because we'll keep you notified with the new videos that we put out each and every week because it's all focused and dedicated to helping you be more successful in your property investing game I'm also host of the Baker Street property meet and Baker Street property meet live stream events which are the UK's largest property investors networking events to find out details of our next Meetup simply go to Baker Street property meet calm and register so let's dive in and start with what exactly is a lease option instead of purchasing a property outright from the seller you agree to lease it or rent it from them for a specific period of time usually a number of years alongside that you have an option agreement which gives you the option to purchase the property at some future point in time at a pre agreed price it's called an option agreement because if at the end of the lease you do not want to exercise your option to buy the property you simply hand the keys back to the seller and walk away for an option to purchase to be legal a consideration or payment has to be made when the option is taken out and this has to be a minimum of one pound so that's a very brief summary of what a lease option is now let's go on to dealing and exploding some of the Buncombe there is on the internet about lease option agreement so lease options as a strategy for new investors looking to acquire property with no money down now it really annoys me when I see lease options marketed by some training companies as an ideal strategy for penniless new investors to get into property and acquire portfolios without putting any money in the game the marketing blurb from these training companies usually talks about how you can buy a property for a pound while such a scheme sounds highly attractive for from the investor's point of view I mean after all who wouldn't want to buy a property for just one pound and no one really asks the question what's in it for the vendor for the seller to agree to such a proposition why would any property vendor agree to part with their property for one pound today having the keys to some inexperienced new investor in the hope that several years down the line they are going to buy it from them outright given the choice a seller would naturally prefer an uncomplicated straightforward simple sell I mean what seller would choose to complicate their life with these convoluted lease option agreements what's in it for them so the solution to this dilemma is to target sellers of properties who can't sell in the normal way in other words they have no buyers in the open market so what sort of people are these sellers they're typically people who are in negative equity meaning that their homes are worth less than their outstanding mortgage payment those sort of sellers find it very very difficult to sell because they have to come up with a stack of cash to pay off the mortgage company before they can move so when the vendor is trapped in negative equity and can't sell in the normal way that's when they will consider a convoluted lease option style agreement because it basically allows them to move out their home and get on with their lives the problem is that the areas of the UK which are in negative equity are pretty much desolate areas up north characterized by high unemployment falling population levels and property prices which are as cheap as chips these areas have been in negative equity for over a decade and there's absolutely nothing on the horizon to make anyone suppose that this situation is going to turn around also the investor has no strategy or plan to force the appreciation of the property they're buying they're just hoping out on a wing and a prayer that these properties will naturally rise in values over the years new investors are usually fed statistics about how house prices in the UK on average double every 10 years these figures may be true but averages are just that averages not every town meets the average and not every property performs as per the average when you purchase a property on a lease option the idea is actually to at some point in the future exercise your option to purchase in other words buy the thing properly it is completely daft to enter into a lease option agreement without having a clear plan of how you're going to uplift the value of that property and exercise that option to buy without just relying on some hope that it will naturally appreciate in price over the years but new investors aren't often given this advice they're often fed the line that it's all about control as opposed to ownership of the asset uber is often wheeled out as an example of this approach uber the world's largest taxi firm they don't own any cars they just control the cars what an absolute load of poppycock why would anyone want to own a fleet of depreciating Toyota Prius around the world property isn't like that you get the right property there are appreciating assets which you will want to own the fact is that if you want to generate real wealth through property you do so by acquiring income producing assets I've got a whole video on this check it out where I go through my five step formula for really doing winning property deals as many of you know I'm host of the Baker Street property meet the UK's largest property investors networking event check out our next meet basic Street property meet calm and register to attend but through doing that I've met thousands of property investors over the years and I tell you I made a few that have purchased properties for a pound on a lease option but I'll tell you one thing I've to date yet to meet someone who's bought these properties on a pound in some areas up north and actually at some point in the future exercise their option to buy so what has been your experience with the lease option strategy let me know in the comments below let's have a chat so remember actually owning property is the name of the game rather than controlling them so there's a lot of nonsense taught to new and vulnerable investors about how lease options can be this easy path to building a portfolio of property with no money down however building a portfolio of property in negative equity areas of the UK is not a fast path to financial freedom but to financial disaster now lease options do not work in Scotland now there is further confusion out there on the internet as some very very accomplished and knowledgeable and experienced property investors have dismissed lease options as being a non strategy as being a strategy fit for the dustbin our friends north of the border will not be familiar with lease options because they are only legal in England and Wales that's because the Scottish system for purchasing properties is completely different one of the differences is that in England and Wales you are allowed to kind of pull out of a transaction whereas in Scotland you are not and of course an option is exactly that it's an option to purchase which you can choose to exercise or you can choose not to exercise so that's why these agreements don't work in the Scottish legal system in Scotland property investors use delayed completions to achieve a similar objective but that really is the subject of another video altogether so how do you make lease options work well now I'll share with you my four criteria for making lease options work for you lease options have their place as a exceptionally effective strategy when deployed by experienced investors sometimes with a little bit of capital available so in what situations do lease options work I'm now going to share with you my four criteria which if all four are true then I found the situation where lease options will work a treat number one the vendor is not looking to sell their own home the property is usually an investment property or commercial property now this is very important because home owners are usually too emotional they're not generally commercially aware and it takes a lot of Education to get them convinced on a lease option type of proposal it works in these low value negative equity situation because the vendor has no choice they're trapped there listen to any solution that gets them out of the mess they're in but when you're dealing with vendors who aren't in negative equity I find it's best to work with vendors who are a little bit commercially aware and a little less emotional about the transaction and they tend to be owners of commercial properties or landlords or owners of investment residential property number two I have a plan to force the increase in the property's value in a short space of time now this is absolutely critical I'm not interested in doing any lease option which is just purely dependent on house prices naturally rising in time I mean that's just a plain pot luck really that's just taking a gamble I mean who knows captain about capital appreciation who knows when it will happen how fast it will happen it's just a complete punt the lease options I do are where I have a fixed plan that I'm doing something which is going to mean that the property's value is going to increase in time in a very short space of time usually no more than a couple of years if you haven't already done so make sure you smash that like button if you find this video useful then smashing the like button will mean YouTube will share it to more people number three the vendor doesn't have that time money or inclination to implement this forced appreciation plan themselves often the vendor may be well aware of what I'm planning to do to force the appreciation in the property it may be that they don't have the cash funds to do it often they're at an age where they just don't have the will or the inclination to do it number four my offer to purchase the property gives the vendor a higher price than they would get for the property in its current condition the scenario as I normally aim for are ones where there's a problem with the property which I am putting in some time effort and resource to actually fix and therefore after doing so I'm uplifting the value the other situation is where I'm enhancing the value I've noticed some permitted development opportunity or some planning gain opportunity which once those permissions are sought and obtained will increase the value of those the the real estate so what I tend to do is an incentive to the vendor for actually choosing to go with me on a lease option agreement is give them a little bit more money for the property then the condition of it today now I will finance that because I'm basically uplifting its value so let's put these four criteria together and as I share with you a real-life scenario of a deal that we looked at and did a few years ago which was a lease option with a vendor now a retiring landlord got in touch with us from some advertising that we put out locally and this retiring landlord basically had a block of flats he was looking to sell he lived a lot of his time abroad and spent a little bit of time in the UK now the problem with these flats was that he had converted them into flats more than ten years ago but he had not obtained planning permission so although these flats were fully rented and fully tenant 'add he couldn't sell them as a block of flats because there was no planning permission the other thing with these flats is they were very shabby they have nothing done to them for over 20 years and the layout was Paul in other words they weren't what we call space optimized for example instead of a studio flat it could easily be reconfigured to a one bed and a one bed could be configured to her to bed and stuff like that the landlord wants to sell and use the money to fund his retirement but it's very difficult to do so if you have no Planning Commission for the for the current use of the property so the solution was that we negotiated a lease option with the vendor we took on control of the property we took on the existing tenants of the flats and we paid the landlord a monthly rent we negotiated an option price to buy the property at more than it was worth today so the landlord was very very happy and we negotiated the right to exercise that option to purchase at some point in the next three years our plan for uplifting the value of the property was simple we put in an application with the council to regularize the existing use of the property that is a certificate of lawful use application for which we had to prove that the property had been used as flat for a number of years the landlord gave us access to various files and old tenancy agreements and that kind of stuff we put together all the information with the help of a planning consultant and filed an application with the local authority to regular eyes the current usage of the property as flats this worked for the vendor because the vendor didn't want the time I didn't have the time and didn't want the hassle of doing this application himself once we got the existing usage of the property regularized as flats we didn't exercise the option just then what we did is we undertook a program of refurbishing each flat and bringing the spec up to modern standards so we change the layout a little bit some of the Studios we configured and made them into one beds some of the one beds we made into two beds new kitchens bathrooms fluorines decorations all that sort of usual stuff and generally up the spec and then when it's time to exercise our option to buy the property of the vendor we can get a commercial valuation on the whole property which values the property as having planning permission for its current usage ie multiple flats and values the property as being of modern spec and post the refurbishment so that valuation comes in at a much higher level than the price that we have agreed to pay the vendor via the option agreement so it's not no money down it's more no money left in at the end of the day and that's really the guiding principle for a lot of the deals that we do some of the lease options are not really a tool for an inexperienced new investor who's seeking to build a portfolio of property with no money down it just doesn't work it's not true that lease options is a strategy for the dustbin they work a treat and it's a fantastic tool to be used in England and Wales it's best deployment is by slightly more experienced investors or knowledgeable investors who have a little bit of capital behind them lease options work a treat when you're dealing with a vendor who is not a homeowner they're at they're an owner of investment property or commercial property you have a plan to force the appreciation of that property in a short space of time the vendor doesn't have the time or the money or the inclination to implement that forced appreciation plan themselves and you're offering a little bit of a win-win to the vendor where you're offering them a slightly higher price than they would get if they sold their property in its current condition today so that's my take on lease options remember subscribe and hit the bell icon on this channel we put out new content each and every week all dedicated to helping you keep on top of your property investing game at the end of the day lease option agreements were born in the world of commercial property when you want to go and get the paperwork done for a lease option agreement you go to a commercial lawyer because they're the ones that actually know about it many of you will know I run a commercial property training program to equip you with the knowledge and skills you need to succeed in the fascinating world of commercial property full details are available at Baker Street workshop comm and if you enter the promo code Ranjin you can claim a 700-pound discount so until the next video bye for now