Choices

by | Oct 27, 2017 | Advice, All Articles, Investment Options

property investment choices

If you are considering property sourcing / investing through creative property strategies but are confused what model suits you let me give you a live example of a deal that I’m currently looking at and where I am going with this….

I have a motivated landlord who has had a bad time of property investing – invested at the peak, poor letting agent, poor tenants, let the property run down – lost money.

The property consists of a small commercial unit at the front and a two bedroom flat at the rear / above.

The property is a five minute walk from the general hospital and is on a major arterial road.

I want this property (not flip it) because I believe that this will gain in value and the commerciality lies in keeping.

So the three ways I’d take this are 1) Purchase Lease Option 2) B2L 3) Rent 2 Rent

I wouldn’t do a rent to rent on this because the property needs some work and I’m not putting our money into someone else’s place. I know that if the returns are good enough then there could be an argument to invest in someone else’s place but I don’t. I’d rather invest our funds into something we own or have an option on.

Plus with Rent 2 Rent I’m probably only going to be looking at a term of 1 -3 years which doesn’t really turn me on.

I’m not doing a B2L because I’m not going to tie up a whacking deposit when I don’t need to.

So we have agreed terms on a Purchase Lease Option.

This means that we agree a price now (this is today’s market value on this property), we agree a monthly fee (way below R2R rates), and we have the property for the next 10 years before we need to consider exercising the option on the price agreed now.

It means that I am happy to invest some funds because I can reconcile doing this due to the lengthy term and the option to buy.

The wonderful thing about going under a Lease Option contract is that we enjoy any equity gain over the term. In other words, unlike R2R which is a very basic strategy which focusses on cashflow, Lease Options give us the back end gain too. It means that we are leveraging off someone else money to enjoy the equity gain that property investors enjoy.

I don’t mean to criticise R2R in any way here, I coach people to to source R2R as well as the more sophisticated strategies, but for me there just wouldn’t be enough money here going down a R2R route.

I know people for people starting out the different options can be a little blurry so I hope this quick live example helps.

David