Creative Property Investing Strategies to Get the Juices Flowing
Options, Lease Options and Purchase Lease Options
Exchange with Delayed Completion
Vendor Finance
Planning Gain
NMLI / BRRR
We’d all love to buy a house for a £1 right? Who remembers Purple Bricks being sold for £1? The headline was astonishing. The reality was far more humdrum. What were they buying? A client list and a bunch of debt. And it’s broadly the same if you buy a house for £1. Hopefully minus the trouble. You give the seller £1 and take on the debt.
Except, in property, you can’t just take on the debt like that.
So why am I telling you all this?
Creative strategies can be wonderful, amazing ways to buy property (or land). And you can sometimes buy without putting much money in. Maybe even none. What’s the catch? Well. This nirvana is possible, but it’s often unrealistic. Really, really often. The chances of you landing a deal with a creative strategy is just so small. Learn about them for sure. We’ll cover some of that ground here. Knowing that there are clever ways to buy is definitely, 100% worth knowing about. But don’t fixate. Slot these ideas in your tool belt and go on looking for the right property to buy. When the right deal comes along, you can pull out your fancy strategy, and apply it to the right situation (and it can be amazing!).
But don’t try and fit a square peg in a round hole. Just because you’ve got a hammer, doesn’t mean that everything is a nail. Even if it looks like a nail.
What creative property investing strategies are there?
Options
If you buy a property ‘on an option’, you haven’t technically bought anything, but you have got the right to buy it (if you’d like to), even though you don’t have to. When you want to make the purchase, you ‘exercise’ the option. And they have a time limit, so there’s an end date.
Why would you want to use an option?
It can cost very little to get into one in the first place, like £1 (sound familiar?). So actually what your £1 buys is the legal paperwork that’s the option contract. And later on, you can buy the property.
Options contracts have been around forever in all sorts of walks of life, property, oil, coffee beans, lots of things. Applying them to a property is pretty specialised, and needs good paperwork (which will cost you more than £1). In the property world, people sometimes tack the word ‘purchase’ on the front of what we’ve just talked through, and use the phrase ‘purchase option’ … and if you were to rent the property from the owner before you bought it … we could also add the word ‘lease’ … which gives us ‘purchase lease option’ … and can be shortened to ‘P.L.O’
What else have we got?
Exchange With Delayed Completion
Another creative buying option is an exchange with delayed completion (sometimes shortened to EDC). These are actually a bit more common than you might think and certainly way more common than options. It does exactly what it says on the tin … you exchange contracts and agree a longer time before completion. Most property purchases don’t exchange and complete simultaneously. Usually, there’s a bit of time between the two. The idea here is that you might want to extend that timeframe. Why? Well if you did that and agreed you could have access to the property, or you could put a paintbrush through, then you could make good use of that time between exchange and completion.
I’ve done a reasonable number of these and always felt there’s been a decent chance of the seller agreeing because you’ve exchanged contracts, and so the sale is locked in. They know it’s going through, and so they have certainty. Even if they don’t know the exact date. If you have a seller who looks like they might agree but is still on the fence, you could always offer to pay something, a fee or some interest or something.
Vendor Finance
We’re back in the realm of the unlikely again. I can only think of two occasions in recent memory where I’ve managed to agree some vendor finance. For one, I was really in the driving seat and could really dictate the terms, and the other was with a sophisticated seller (a property developer themselves) and so they were OK with the idea.
Vendor finance is just a fancy way of saying you’re getting a mortgage, and your mortgage company just happens to be the seller. This works especially well when the property is mortgage free. (If there’s an existing mortgage on it, then you need at least enough cash to pay that off). If you’re buying a flat for £200,000 and the vendor has no mortgage and doesn’t need the money, you might give them £50,000 as a deposit and rather than borrowing £150,000 from the bank, the seller lends it to you out of the property and rather than sending you the money just takes a 1st charge over it (just like a regular mortgage company would do). You’ll probably agree some interest you’ll pay to them and at some point later down the line, you’ll sell or re-finance and pay off the remaining £150,000.
Planning Gain
There are lots of other clever things you can do. You could buy land and get planning permission which would instantly increase the value of the property without you laying a brick. You could even secure the land through an option (just like we explained above, but here the option isn’t on a property, but on a piece of land instead). During the time you’ve got the option (the option period), you go and get planning permission and you’ve increased the value before you’ve even owned it! Pretty amazing.
You can do development deals, involving some of the above.
NMLI / BRRR
And of course, my favourite, you could do an NMLI / BRRR which stands for ‘No Money Left In’ or ‘Buy Refurb Rent Refinance’ deal. These aren’t necessarily ‘creative finance’ but they certainly are creative strategies, and they’re very lucrative. I’ve talked about these a lot in earlier posts here so I won’t get into them again .
To sum up, it’s useful to know about each of these tools and then you can use the right tool for the job. Just remember that some of these are more common than others. And if you’re going after the proverbial rocking horse poop, remember how likely you are to find it!
Want to know more? We’ve got just the expert for you at The Property Meetup on the 8th June here Michael Primrose will go in depth on real live creative property investing deals! Click here to book your ticket.
