Purchase Lease Options, or PLOs as we call them, is one of my favourite strategies. It’s a way of you getting cash flow and equity growth from a property you don’t even own. You rent the property for a number of years and then you have the right, but not the obligation, to buy that property. This would be for a price you agree at the beginning of the option period. It’s a very powerful strategy. Most people struggle to understand how to find Purchase Lease Options in the first place. So I want to share with you three strategies to help you.
First Method to Finding Purchase Lease Options
The first strategy of How to find Purchase Lease Options is very simple. You can go online or speak to local estate agents or letting agents. Look for properties that are For Sale and also For Rent. I’m sure you would have seen some of that. You’ve seen ‘For Sale’ and ‘To Let’ boards outside the property.
Well, what the owner’s basically saying is, “I want to sell the property, but ultimately if I can’t do that, I’m happy to rent it in the meantime”. That’s exactly what you’re doing with a Purchase Lease Option. You rent for a period of time, then you’ve got the Right to Buy. So look for those properties with Letting Agents or Estate Agents that have “For Sale” and “To Let” signs. You then approach the owners to see if they want to work with you.
Second Method: Tired or Retiring Landlords
The second method to find Purchase Lease Options is from landlords. These are particularly tired landlords or retiring landlords. The best way to find these landlords, is to look for landlords who are advertising their properties. They’re probably managing it themselves and thats why they advertise them For Rent. They might have a HMO – in which case they’re probably advertising rooms on SpareRoom.co.uk or Gumtree.com.
Once you are online, look for the landlords who are advertising their properties to rent out. You just send them a text message or an email saying, “hey, I looked at your property online. It looks really good”. After this you would then say “would you be interested in a 3-5 year guaranteed rental income?”.
Now if they come back, say, “Yes, I’m interested.” You can chat them about their property and see if that might work. By the way, that’s called a Rent to Rent deal. Then you ask them.
The second question is, “Okay, well if I like the property, would you be interested in selling it to me in a three to five year period?”. If they say yes, fundamentally that’s an Option they’re agreeing to. They’re going to rent it for a period of time, then give you the right to buy it. All you have to do is negotiate the terms of your Purchase Lease Option.
If they’re advertising themselves, maybe they’re not very good at managing properties. Maybe they’ve had some bad tenants. Maybe they’ve got some void periods. You offering this guaranteed rent might be very attractive to them. They might be a distant landlord trying to look after the property remotely. That’s a hassle. Or maybe they are using Letting Agents who don’t really know what they’re doing, and don’t want the hassle anymore.
My Favourite Method: Writing Direct to Landlords
The third way of finding Purchase Lease Options, my favourite way, is actually writing direct to landlords. You could do this in two ways. You can walk past the property that you notice is empty or derelict. You can also look out for one that’s just sitting there apparently void. You can then go onto the Land Registry and find the owner by downloading the Title Deeds. Pay your three pounds to do that. You then write to their home address to say, “Hey, I notice you’ve got this empty property, would you like to rent it out or maybe sell it?”. Some will, some won’t want to do that.
The other way to contact landlords through letters is to go to a local council and speaking to the HMO Licensing Department. You can then get a list of the licenced HMO properties in the area. After this you can send the letters, not to the actual property, but ideally to the owners home instead.
Going into the Land Registry
Sometimes you can get the owner’s details from the councils. But you usually don’t, so go into Land Registry again and get the details. You then send them a letter. Again, you say the same thing – “Would you be interested in renting your property for a long time or maybe selling your property or even a combination of the two?”.
Right now there are lots of landlords who are sick and tired of the changing legislation. The introduction of Section 24. Landlords are getting taxed more if they own the property in their own name. This is also if they’re a higher rate tax payer. All these things are causing landlords to think about retiring early, which means there are more landlord properties available in the market than ever before. So now is such a great time to do this.
Simon Zutshi
Author of Property Magic
Founder of property investors network