Berkshire Teleseminar Part Two

Juswant Rai: For those of you that don’t know me my name is Juswant Rai the joint hosts of Berkshire Property Meet with Sylvia Rai and on the call tonight we have the Wealth Dragons John Lee and Vincent Wong.

Vincent Wong: Hi, I have been in property for many years I bought my first property ten years ago, a one bedroom flat in Clapham for £78,000 and a year later I sold it for £105,000 and that was the quickest buck I have ever made. This was my path in future investment, not knowing there was so many mistakes to be made and I did everything the hard way. I am not complaining, it is a great business and I have met a lot of fantastic people. Over the past four years I have been offering a property lead to our investors I have just generated over 30,000 BMV leads and I have helped hundreds of people buy properties in the UK and now I live very happily with my wife and two children in Milton Keynes. In my spare time I love good food, I love my French wine and spending time with my family if I can find time at the moment.

Juswant Rai: Yes a very busy man and a bit about yourself John and your background in property and what you have been up to in the last couple of years.

John Lee: Yes my background started when I was in my mums shop. My mums has got a Chinese take away and I used to wash the dishes, I always used to look over and think there has got to be a better way. I thought right I am going to go to university, I got a first class degree and I spent a lot of time doing that. I got a job in London I was on £60,000 a year and for me I didn’t like people telling me when I could have lunch, when I could go on holiday and for me my time is more important so I tried to figure out a way on how to earn money really quick and the first 6 months I bought a property and I made my salary and I thought wow that was easy. My original goal was to earn my salary and take the rest of the year off and as a kid I always wanted to own a Lamborghini so I thought there has got to be a faster way of making cash passively and when I say passively I don’t mean you can have a business and not do anything, what I mean is giving you that freedom to do what you want, when you want and how you want. And you don’t have to answer to anyone. That is one of the reasons why I got into property because I think it is a great way to make a passive income and a great way to make a lot of cash very very quickly.

Juswant Rai: Good stuff John. Just before we take another call can everybody make sure you have a pen and paper with you ready because there will be a lot of information going out tonight and this call is being recorded but I want to make sure people make notes and if you have any questions that come up during the call you can email John and Vincent at the Wealth Dragons, and I will give you the email address at the end, and you can email some questions in or you can go to the Wealth Dragons page that’s on the emails that a lot of people receive and post your question there because what we might do is put something together to answer top 100 questions for everybody so we will be doing that later.

Vincent I mean lease options, hot topic at the moment everybody is talking about it its sort of something I heard about three or four years ago and nobody was taking it seriously because money was easy to get. There was an easy BMV you know you could do the same varied finance, there was MX, you had BM you had all these other companies and money was flowing and you just thought you don’t need lease options but in the last probably 2 years and possibly in the last 6 months everybody talks about it, everybody talks about lease options all the time. And in the last month the volume seems to have gone to a level ten plus. So why are lease options such a hot topic at the moment?

Vincent Wong: Well really, it started to become very popular and prominent in the UK since the credit crunch started just about 18 months ago. In fact lease options have been around in the US and in Australia for over 30 years and people have been using lease options in the UK in the commercial property sector. People have been using lease options to acquire property. Now the reason why in the UK it hasn’t been that popular seems to be the easy access to credit and especially during the ammex mortgage express era when anybody could earn just a small income could self declare for a mortgage and in actual fact most people only know about the one way of buying property is to get a mortgage. Now times are different even the most experienced investors cannot get a mortgage because they are turned down for no other reason than being an experienced landlord, which is quite ironic. Now people are trying to figure out a better way of doing it and all of a sudden they just turn around and see how investors have been buying property in the US and figure out lease options are the way forward. So you know people just realise why have we not done this earlier and lease options are such a powerful way of acquiring property because at the end of the day, let me ask you a question. When you have a mortgage on a property do you actually own the property?

Juswant Rai: A few years ago I would have said yes I do, but I know the answer to this now because I think we had this discussion before. What happens if I stop paying the mortgage for three months? Who owns the property then?

Vincent Wong: Exactly if you stop paying the mortgage, you know it is the bank that owns the property. What you own is actually debt on it. At the end of the day when you have a property on a mortgage it only allows you to do certain things such as, living in a property, letting it out, and eventually you can sell it, so it gives you a certain right but you don’t truly own it while you have a mortgage so the key is actually control. The control of the property and the cash flow is the key, this is exactly what lease options can do for you without the all the associated hassles such as, applying for a mortgage, having to beg for a deal that gives you 30% below the market value, again these leads are very expensive and having to finance the deal, getting the valuation right, getting the rent right. It is just a nightmare but lease options will eliminate all these hassles.

Juswant Rai: I am sure lease options will. So basically every property unless someone has paid the mortgage off has got debt on it. So whether the debt is in your name or someone else’s name all you are interested in is taking control of that property, taking control of the cash flow and possibly taking control of the future value of the property.

Vincent Wong: You have got it. That is exactly what is it. A lease option actually comes in two parts. The lease element of it and the option to acquire the property, and the option gives the bearer the right and not the obligation to buy this property at a predetermined price in the future. So if the property is worth for example £100,000 and there is not equity it in and so you can effectively control this property by agreeing with the seller to buy it for £100,000 sometime in the future but what you have to do is wait for the value to increase over time to give you sufficient equity to buy at BMV in the future.

Everyone: Excellent, excellent.

Juswant Rai: Good stuff, last time we got through from 10 points that you were going to cover and what they were, were 10 key points you guys have identified and people have mentioned in the past about lease options and we got as far as point 6 and we ran out of time, we went for over an hour.

This time we will start with point 7.

Point 7 on the list is the simple concept that can be applied straight away, but can people actually apply lease option concepts straight away?

Vincent Wong: well just very briefly, with lease options the concept is very simple, you know it is not rocket science, you can buy lease option books which are written by authors obviously, can even be used for foreign markets but the concept is the same.

You give the right but not the obligation to buy property tomorrow with the price fixed today. So it’s not really that difficult although its simple by no means is easy don’t get me wrong John and myself have done 32 lease options over 9 months. We have made loads and loads of mistakes. Well the easy part of it is to find leads incidentally a very difficult activity for most people if you don’t have the leads you won’t be able to do any deals at all whether BMV or lease options.

Now the good news is the leads that you normally put in a box because they don’t stack BMV wise are the best candidates its time you take these leads now and start contacting these sellers and say before you couldn’t help them but now you can. But once you have the leads you still have to communicate with these sellers in a very very different way. Now when you are a BMV investor there is only one way you can do the things which is to go and try and get as much discount as possible. Now as a lease options investor you have to position very differently, you have to come across someone who is very resourceful, you have to be a problem solver as with lease options you can help the seller in so many different ways.

Here is the challenge most investors don’t even know what lease options are how do you actually sell the concept to the seller? How do you convey this message using simplest terms as if you are explaining it to a complete novice, so that is the big challenge. It’s not as easy as just getting the paperwork out then saying I’ll take over your mortgage sign here. Besides the legal system that’s used it has be completely water tight. There’s so many different implications if you have a really good legal system the time comes when you have to exercise your options, the property just won’t stand up at all also the legal system has to be in place to protect you because don’t forget lease options is the transaction that happens in the future. So in meantime you’ve got very long relationship from 5-7 years with the seller, and in the meantime from the tine you sign the contract you still need to manage it all the way through to completion. Because we’ve had deals fallen through as we’ve simply sent the contract to the seller to have a look before completion and then we’ve never heard from the seller again. So there are so many things we have to pay attention to, from the time you engage with the seller way up to completion and beyond. Simple concept but it’s not easy to implement so it would be easy if you know how once you know how to do it it’s very, very rewarding.

Juswant Rai: So John, if you can tell us a bit about the relationship because one of the most important things you are getting into a deal with somebody not just like the BMV where you have to keep the vendor sweet for 8 weeks, keep them informed, make sure the seller when that BMV deal goes through you’ve exchanged you have completed really and that’s it the vendors out the picture. But with this you are basically going into a partnership that could be for five years plus.

John Lee: Absolutely, you see the thing is you always think BMV is a win win situation but the more and more you think about it, u think its not really a win win because you are taking 30% of someone’s house and that’s usually the rate people go in to, its really important you should always keep in touch with the seller. In ten years time our houses are usually worth more or less.

Vincent Wong: Generally if you look at it statistically, they are usually worth double.

John Lee: Absolutely, so if you are a seller and in ten years you think your situation might have changed?

Juswant Rai: More than likely yes.

John Lee: Absolutely, so in ten years time, your situations changed you are not in such a desperate situation or position where you move quickly and there is £100,000 worth of profit there, so how might you feel?

Juswant Rai: If I suddenly thought hold on I’ve just given away £100,000 worth of equity I might be like hold on I don’t want to go through with this deal.

John Lee: Absolutely, that’s why we use an option seller JV so one thing we do is you can cap the profit in which you earn and you have got to make it a win win. When you actually exercise your option you have to give that person a cut of the equity. We have done that with quite a few deals, especially if you are doing a rent to buy if the property value goes and you give them a cut of that also. It is really important that you manage the process. The process starts right at the start and it ends right at the end, I know it sounds dumb but at the start you need to get that deal, all the objections need to mount there and then because you know sometimes down the line we say hold on a second, you said you would pay my mortgage.

One of the ways we do lease option deal is we take care of your mortgage payments but they might not cover all your payments, they might have a loan for example. So one of things we do is cover their mortgage and they will take care of the loan, or sometimes you might have an interest rate high, the interest might go on from 5% to 10%. You want to protect yourself and again with our legal system you can’t protect yourself against that but if you don’t explain that to the seller right upfront, simply the deal that stacks now and does not stack in five years time there is going to be a problem. So its is really important that you get everything out upfront and make your sure you have gone through the complete legal process and again if you do it wrong your option could be challenged.

Juswant Rai: Yes and there are also things that we talked about, interest rates changing, they are very low at the moment, somebody could be on a very low rate suddenly and nobody knows how long the rates will stay low for. But when the rates eventually do start coming back up the deal could be where you are getting £250-£300 cash flow because it doesn’t look like you need to put in £200. So you need to make sure you are looking after your long term interest and planning for that and you need to make sure that your contracts actually cover that and those other eventualities.

Vincent Wong: When we talk about the contract most people just take it for granted and once they have signed the contract that’s it. They believe they are totally protected and do not have to worry about anything but the one thing that you have to bear in mind any legal systems can be challenged even before or after your lease options have been agreed because if the seller is really disgruntled and somewhere down the line they just feel that they are not getting their share of the pie they will perhaps, and I’ve heard about this many times especially from our fantastic lawyer that sellers do challenge legal contracts in court and they can claim something called an undue influence.

This is a legal term that has been exerted upon them at the start, you can prove that at the time when the contract is signed that the sellers have been given sufficient advice to seek legal representation and they fully understand what sort of agreement they are entering. They could challenge you in court and if you cant prove that the contracts have been done fairly they could be set aside afterwards so that means all your hard work, and all the time you have taken to nurture the deal would go to waste and besides that it is a hassle that you can do without, so this is something you need to bear in mind, if you feel somewhere down the line that there is something wrong with the seller it is best to bring all these things on the table and discuss them. This is why it is really important to have an ongoing relationship with the seller.

Juswant Rai: I think even it is still true when you are doing BMV unless you fully understood what the seller was about and what they wanted and what their actually out come was and it wasn’t always focussed around the money you’d missed that point.

Vincent Wong: Absolutely, even in a normal landlord tenant relationship you know that if the tenant breaches the terms of the AST you can kick the tenant out by serving section 21, is that something you want to get involved in? only if it is really necessary you need to use these forces, but a successful lease option deal requires both parties nurturing this relationship that is ongoing and if there are any sort of problems you need to sort them out sooner rather than later.

Juswant Rai: Ok that is cool, we will move on to the next point and you could talk about this for quite a while. The word negotiate, I have heard be used so many times, but lets say it’s easy to negotiate with the sellers I mean I don’t like the term negotiate because I don’t think that’s what you should do. The term negotiate means to me that somebody has to lose and somebody has to win, is that what we are really trying to do?

John Lee: No there are two different mind sets, if people have a pen and paper this is what you need to write down. You need to be a consultant you are not looking at that person as a customer you see the BMV deals and I am guilty of this from when I first started, you really looked at trying to get the property at a discount to the market and the way you do lease option deals you need to find out what they want and need to structure the deal around them.

Basically a lease option is like a lump of clay, so you can mould it into any shape you want but at first you need to know how you are going to mould that shape, so one the really simple ways like when I jump on the phone with people the first question I ask and the first thing to do is get peoples permission to ask them questions so I will say something like

‘Hello its John from property network buys, you filled an enquiry form to sell your property, yes are you still looking to do that’ yes?

Then qualify the call and just say how can I help and they’ll say yes I am looking to sell my house and then you might ask a question

‘Can I ask a few questions about your situation to how we can help you?’

And I’ll ask some questions about your finances as well.

If you are asking questions that really draw out the information they will give you two reasons why they sell. One is what we call a surface level answer and when you get deeper into that, that is the main reason why they want to sell and until and unless you get that persons permission you will never ever be able to structure the right deal for them. We have a 7 step process where if you go through it strategically in that sequence you will always draw out the real motivation and that is how and what has allowed us to do so many deals in such a short space of time.

One other thing I will say also is we always ask questions, capacity questions, capacity is how much equity is left in the house so you might say something like what is the outstanding mortgage, if your house is worth £100,000 and the seller owes £90,000 the equity in there is only £10,000 so there is not enough equity in that property for you to buy the house traditionally so, what you have to do now is based on that question what offer can you offer them because you will have people who have little equity in their house and you will have people that have lots of equity in their house and the question you have to ask yourself is based on those two scenarios what and how can I offer this person the offer, how can I give them what they want and still make money from it. A lot of people teach just two options, we have 31 different types of options we can use and we actually mix them up a lot. So sometimes we use a bit of BMV, sometimes we use options, it just depends on that person situation, but until you can uncover and get the real reason on why that person needs to sell and again some really simple questions I use all the time, like;

‘How can I help?’ ‘Could you tell me a little bit about your situation?’

And my favourite one is the magic wand, you say to them,

‘If I had a magic wand and I could just wave my magic wand, what would you like to have happen?’

And they say what do you mean and I say,

‘If you could have anything you want, what would you like to have happen?’

And they’ll say well my house is worth £200,000, and I want £150,000 for it or I might want £170,000 for it.

This is when it gets a bit complicated using a technique we use called Test Closing. Vincent and I always buy houses over the phone it’s a hard concept for some people to grasp and I used to drive to a lot of houses and waste a lot of time but one of the things I do now is we always qualify and close the deal so when we drive to the property, it is not that we are driving to the property to see if the person wants to do the deal or not, it is driving there to basically sign them up. Make sure it is there make sure it exists.

Vincent Wong: Just to add to that, also when you start to communicate with sellers it is very important to emphasis the benefits and say your concerns because most sellers actually do not understand what lease options are, so if you start using jargon like lease options, sandwich options, premiums, option periods they will be completely put off. We have done things like this in the past and been wondering why we haven’t heard back from the seller. The key is if you cant explain the whole concept of lease options to someone who is completely like your little sister or your little brothers friend or someone who has no idea what lease options are, if you cant actually use your own words to explain it in the simplest terms you wont manage to do many deals at all.

Juswant Rai: Yes because outside of this call there are not that many people that would of heard of lease options unless they are involved in commercial property, so if you walk in there and start using terms like lease options, and all this other stuff is just going to confuse people and the answer you will get is ‘I need to think about it’ and it is because they have not got a clue about what you are talking about.

John Lee: Absolutely and ill tell you something for those of you listening, the number one tip to communicate this to people in a very very simple form and again we use this all the time, the staff in our office use this all the time it is the same technique we use to quote one deal a week, in fact we taught this to our apprentice and within 5 hours from calling, she did the deal, she drove all the way up to Nottingham, closed the sale and it was done.

So if you have your pen handy I want you to write this down. When you make the offer to the lease option you have to use metaphors, just like you do in BMV. In BMV a metaphor would be when you sell your car you can put it in the Auto trader or you can go to a garage. If you go to the garage you get guaranteed sell if you go to the Auto trader you get people that mess you around. When you do a lease option you have to do a metaphor, so you have to use words like take over your mortgage or look after you mortgage payments, or babysit you mortgage payments. If you use the words lease option, people get really confused and then you have to describe that metaphor to them so if I was to say how much money is you mortgage and ask them questions and they say £500, I will say right next month how much do you have to pay? And they will say £500 and I will say well the purpose of you getting rid of this property so you can move abroad and you don’t want this payment do you? They’ll say no and you will get an agreement and you check this is what they want. So you say lets just suppose or let’s just imagine that next month instead of the mortgage payments coming out of bank account, they came out of my bank account, how would you feel? And they say that sounds really good and will ask the question of how does that work and that is when you can start describing the whole process until or unless you get to that point do not even go any further than that.

Unless they get that you are going to take care of their mortgage payments and that is going to allow them to move on. Some people say well that is crazy, does that still mean I am going to own my house? And I say yes, and they say if I still own my house I do not want to go ahead with that, that’s one of the objections we get and we’ve got about 55 objections and I have found an extra 5 objections of what people always say. But that objection, you need to make that person to see that by doing this it is the same result as though you have got rid of your house.

For example one of the criteria and again we looked at peoples criteria of when to use lease options and when you find someone whose going to buy another house, who has got a deposit but the only reason hwy they are not buying that house is because they have got a mortgage on a property that they are living in at the moment and because of that they cannot afford two payments, you get that quite a lot don’t you.

Juswant Rai: Yes

John Lee: So whenever you are in that situation just say, if I can take care of your payments it means you can move into that property and cover the payments on that and it is as though you had sold the property and the same result isn’t it. You want to get some sort of agreement from them and if they don’t understand you need to explain again you need to find some metaphor. I have been trained by some of the top sales people and top communicators and one of the things they say to me is ‘when you are on a call with people, when you speak to people they don’t understand what you are saying, you need to change your approach’ it doesn’t matter if you have to change that approach 50 times. You have just got to know first of all how does that person interpret information, how do they perceive how you are speaking to them and are hey aware of when you say something they really understand what you are saying. Because you say does that make sense? And they say yes reluctantly, it doesn’t does it.

Vincent Wong: No

John Lee: Yes so that is something to be aware of and that is not what a lot of people pick up on, and the difference is between doing a deal and not doing a deal.

Juswant Rai: Ok, good stuff lets go on to point 9, which is you can use the power of attorney to cut out the seller.

Vincent Wong: That is definitely not true. You cannot actually use the power of attorney to cut the seller out. It is not in your interest as an investor to cut the seller out all together.

First of all you mentioned it is important to maintain an ongoing relationship with the seller so that you can resolve any issues all the way through because it has to be a win win situation not just from the start abut through the whole time of the lease option agreement. Now with the power of attorney as far as an investor is concerned, there is one thing that you should benefit from in this, and that is that you are able to make limited decisions in the absence of the seller. For example when time comes for you to expire the option and the seller is not around for any reason, maybe the seller is overseas, for any reason you cannot get in touch with the seller you can actually make a decision and take action to buy the property and exercise your option.

The thing about the power of attorney is you can actually get what we call the lasting power of attorney which will give you all the full rights to make decisions on behalf of the seller and that will involve being able to contact the sellers mortgage company or to do literally anything that the seller can make the decisions to do, instead you will be taking those into your own hands. But one thing you need to be really careful of is the power of attorney is not to be abused. I don’t know why but I have heard people say we have got the power of attorney, we have got the paper work and now we can just cut the seller out and we can do absolutely anything like remortgaging the property, or turning it into a HMO or turning it into a theme park, whatever you want to turn it into, but this is the last thing you want to do. Because for a start the power of attorney can be rescinded by the seller at any time so it is something you do not want to abuse. It simply served the purpose of making it more convenient for you to take mind of the decisions.

The second thing is, think about it if you decide to remortgage property without the agreement of the seller or turning it into a HMO, once the seller finds out how is that going to turn out as far as relationship is concerned. Just think about it in 7 years time if for any reason you decide not to exercise your option you hand the property back to the seller and the seller finds out that the property is completely beyond recognition I mean how would you feel about that? You have to put yourself in the sellers’ shoes as well.

Juswant Rai: so you decide you look at the property you look at it as a lease option deal, you look at it as a cash flow, you look at the area and think actually this would make a great HMO, so you would be honest with the seller and say look I am going to take over your mortgage and at some point you would say I am going to rent it out by the room and this is what is going to happen.

Vincent Wong: Exactly, there is no reason why you should not do that upfront besides it is really important because if the seller can see the benefits for you to turn it into a HMO to make the deal back, you are really doing this for the benefits of the seller, because it is in the sellers interest for you to get a rental sufficiently to cover the mortgage, so absolutely fine. If you have to remortgage the property for any reason, then the seller should really know about it because the mortgage after all is in the sellers’ name. If you are going to be picking out a huge lump sum of tax free cash by remortgaging it, is there any reason why you should not give a small share of that to the seller? So I think it is really important that you keep the seller in the loop. Now having said that you should have limited power of attorney built into your lease option contract, the simple reason is that if in 5-7 years time it is not always easy to get in touch with people, if the market is right, the price is right and you want to exercise your options you should be able to do that, and that’s why within our legal system we have a limited power of attorney built into the contract which will only enable the seller to exercise the option in the absence of the seller that’s it.

This limited power of attorney is irrevocable in other words, in other words the seller can not rescind this power.

Juswant Rai: Okay well obviously people will need to seek legal advice to make sure the solicitor they use, whoever that is fully understands lease options and all the different aspects that need to be covered. The power of attorney is not designed so you can just say right I have got control of this property I can do whatever the hell I like with it, sod the seller. All you are looking to do is have the power of attorney in case you can’t get, the seller is one of the reasons you might want to do lease options because they are moving abroad, and for whatever reason over 5-7 years, people move on their address changes, you might not be able to get hold of them and you have taken all avenues you can think of to try find them, you want to exercise that options, you have the right to buy it and the power of attorney will allow you to do that, but you are not using it for anything other than that.

Vincent Wong: Absolutely, you are absolutely spot on there, beside that, if you decide to use the power of attorney and to set it up, it is always a good idea to use a lease option solicitor who knows how to do it and understands the deals and to seek legal advice. Because the power of attorney is not just a simple form that you fill in and register it and that’s it. It is always important to do a title search because by law if the property is actually owned by more than one person in the case of joint tenancy or tenancy in common then you would need to have a separate power of attorney for each individual owner and that’s in the case if you need to have lasting power of attorney otherwise you will find that when the time comes that you want to exercise your lasting power of attorney and it is invalid because there is more than one person owning this property. So it is important to do a title search but with our legal contracts you have a limited power of attorney and you can just basically exercise your right to buy when the time comes in the future in the sellers absence and that is it. We have seen some power of attorney contracts out there where people can just fill it in without doing a proper title search and I think that is very dangerous.

Juswant Rai: I think one of the things that we also covered in the last call and I think is worth covering again because you have brought up with national searches. You will get a proper legal search on a property as if you were buying it because if you are going to be in this thing for possible 5 years or longer, you are going to want to make sure you know what is going on, because you could pay an option fee and you want to make sure you go as far as you can on getting proper searches done on that property to find out what is going to happen, to not only that property but in that area in the next 5-10 years.

Vincent Wong: Well that is right, yes it is true that in 5-10 years time when you exercise your option and decide to use the mortgage on the property which to say is only one of the many ways for your exit strategy, you do not have to buy the property, and therefore we show investors as well that there are other ways of doing it.

When the time comes you will need to do the searches again if you decide to use the mortgage, but in the meantime between now and the end of your options term, it could be 7-10 years, the question you need to ask yourself is, do you want to nurture this deal without knowing anything about the property? Whether it is going to be mortgagable? Whether it is sitting on a coal mine? Whether there are any adverse environmental conditions? These are the things I would like to know upfront and I am sure a lot of investors would want to know just for a small fee.

So going back to people claiming you can buy property for £1 only, I think people really do need to know the truth. Yes legally on the lease option agreement the £1 is a normal amount you pay to control a property, as far as the contract is concerned that there are other costs associated with is, there are legal fees. If you decide not to do any legal searches at all which is not a legal requirement anyway, you should at least do a title search and have looked to make sure that it is not a really dodgy place and for just a small amount of money you can have a piece of mind and I think that is very important. So it will definitely cost you more than £1, you have got money that you need to spend on advertising and getting your leads and doing your searches. The good news is it won’t cost as much as buying a property event the BMV where you need to spend on your survey, a full scale conveyance, even putting money into the deal. These days’ people still put in 25% deposit of their own money in the deal. So if you know how to use lease options, yes it will cost you some money, but if you structure your deal properly and get the cash flow right, you will get this money back.

Juswant Rai: Good stuff, I think one of things which you talk about, people buying houses for £1 which is right you can but they £1 does give you most the contract binding because the money is exchanged. Even with no money down deals people say oh yes there is no money down, but you still need money for the legal’s and searches and all this stuff upfront which you get back of the back and which makes it the no money down and people say yes but its no money down, at the end of it is it no money down? But that’s what people have said, ‘Oh yes you can do no money down where you don’t need any money’ but you did and with this it’s like you buy a house for £1 but is it not just £1, there are costs and legal costs. Sometimes would the vendor be willing to pay the costs if they knew they were going to move on and shift the property and get rid of the headache.

Vincent Wong: Well just roughly speaking to generate leads to start with, leads don’t come from nowhere, we are very fortunate to be in a position where we have generated thousands and thousands of leads, before most people it takes to just do advertising. To buy leads out there you have to stand from anything between £25-£100 just to buy one lead, and it depends on what your conversion is, if your conversion is good it could be one in ten, I think a lot of newbie investors there conversion is one in twenty five or thirty. So there is money involved and other things you need to cost into the deal so it is not completely no money, so just be aware.

John Lee: Can I just add something there as well. It is not just an investment of money; it is an investment of time and knowledge because I was in a situation where if I didn’t learn a new skill, I would be in serious trouble. For example one of my property’s, a lot of people know this, but was actually turned into a cannabis farm. There was £25,000 of damage, a lot of negative cash flow and I needed a strategy to get myself out of that and it is again not just spending money on courses and investing you time in this, you have got to really want to do this, and if it comes down to you just wanting everything for nothing you will not value it.

It is like when you get something for free, someone gets you a car or you get something that should have cost you money but it doesn’t, you just don’t value it. So even for me now when I’m spending money on my knowledge or spending time on a deal, when that deal goes through I am like ‘Yes!’ I have put so much effort into it that I really start appreciating. It is not just a monetary thing, you have got to put a lot of time into this and want to really do it. And if you are not learning lease options, for me you won’t get very far as a property investor and the reason I can say that is because you have got to have lots of tools available to you.

If you don’t know how to structure a deal, for example every one in seven leads I get I can convert it, I am confident in saying that because we do this all the time in our workshops. But if you are spending a lot of money of lead generation and you aren’t getting anything back because it costs a lot of time to generate it, to put the advert in, you at least want something back for it don’t you?

Juswant Rai: Yes, ok guys we need to move on I am conscious of the time I mean the last point is, once I have completed on a deal there is no risk at all as far as I am concerned the deal is done you put your feet up for the next five years, its all hunky dory and if you want to you can buy the property if you don’t it doesn’t matter because after five years you can just give it back.

Vincent Wong: I think that by now a lot of participants in this course have a very good idea that lease options is about future transactions in the mean time there is a relationship to nurture. A lot of things can happen in the future, nobody really knows, to say that it is risk free that is just not true. Just quite simply if you are in a back to back sandwich option deal in which case you grant and option to your tenant , who becomes a tenant buyer.

Now you become responsible for this tenant anything could happen what if this particular tenant buyer wrecks your property and in the mean time you don’t actually own this property, you are just legally responsible for it, as far as the original owner is concerned you are taking care of the whole transaction so that is quite risky. Now other scenarios will probably include what if the seller decides not to honour the lease option deal and refuses to give you the property. In which case you have landed yourself in a legal battle that will end up in court, is it risky? Yes it could be, who knows it really depends how you have structured the deal and how you engage with the seller to start with. And what happens for example if the seller has agreed at the beginning to contribute towards the rent, if the seller stops contributing then does that mean the whole deal will fall through? Yes perhaps but none the less it is quite risky you might have to enforce your contract and you might just let it die and walk away from it, which is not too bad because you have the option but now what happens if the seller becomes bankrupt, does that mean you will lose your deal?

There are so many things you need to be aware of the deal once done is far from done.

Juswant Rai: Okay cool, good stuff, so John is there anything you have to add to that?

John Lee: Yes I do actually, people always want no money down, cash out or a house for £1, but once you have signed that paperwork its as though you have now bought a property which means you are liable for mortgage, liable for any void periods, and one of my property’s in the Lake District, when it was cold the pipes froze and we had a whole flood because it wasn’t tenanted at the time, so the insurance didn’t pay out and that cost me two and a bit grand to fix. When you get into property people say you don’t need money but the reality is it is good to have a bit of cash, and that’s why when I got into property I needed a back up plan.

We teach financial security, financial freedom and financial abundance. Financial security is if you have no money and no job how long could you live for? And that’s the same question you have to ask yourself in property. If you took on a portfolio of five that is going to cost you £3000 a month, hypothetically speaking if all five were not let and this is what happened to me when I first started and again I could have been in a lot of trouble had I not bailed myself out with all my strategies. You are taking on a lot of responsibility and you don’t go into a lease option deal if you think well its void I am not going to honour it, because you will have to honour it.

Juswant Rai: Yes because you have taken on that obligation to pay that mortgage.

John Lee: Absolutely

Juswant Rai: So if there is a void, and you have not gone out and got another tenant, and think its ok and it doesn’t really matter, somebody still has to pay that mortgage.

John Lee: Absolutely, if you are going to rent it, if you are not using any creative strategies like tenant buyers, or we have got one called Jim Will Fix It, where you get people to fix your house for free and they take a cut of that, or we have got another option, called an investor donor where if someone is listening to this call and got no houses at the moment and they wanted to come work with Vincent and I and we help them buy lots of properties, that’s a investor donor type deal. But if you’re taking a property and just going to rent it, that property has still got to be in good condition to rent. When you take on a deal you have got to think right how much have I got to spend on this house to make it rentable? You have still got those obligations.

Vincent Wong: Yes and also just to add to that. Touching on tenant buyers in the current market when property prices are perceived to be generally flat and not going to be going up drastically in the future, what you are essentially doing is when you are granting an option to the tenant buyer, you are granting a core option.

The core option is that of when you agree on a price today, the bearer of the option will hope the property price will go up in the future so the option bearer can exercise it in the future at a much lower price. Generally property prices are not perceived to be going up and you try to persuade tenant buyers to part with a lot of money to start with as your option upfront fee which is non refundable and something called an option premium which is an amount of money above the market rent on a once a month basis. The privilege of having this option to buy in the future in five years time if the price doesn’t go up sufficiently for this tenant buyer you could be accused of mis-selling. This is something to be aware of.

Sandwich lease options have been really popular in other countries, for those markets where the market was really favourable in the UK market it was completely different. Rent to buy and sandwich lease options are really not something you should abuse in the current market and definitely one of the hardest strategies to implement. Having said that I don’t want to say it is not useful, in certain circumstances yes. With lease options there are many risks associated with it but if you know how to do it and know what risks there are and watch out for them, it is one of the most rewarding strategies for developing your property portfolio.

John Lee: And I would just like to draw on a metaphor and an experience which happened to me when I first started, when I got into property right at the start with low market value. My friends used to say to me, my mum, my parents, my brother, all my family and close friends said to me, don’t go into property it is really risky, property prices are going to crash and all this sort of business. Because I knew how to handle that risk, and there are only two risks, one is property prices crashing and the second is interest rates going up.

If you can manage those two risks, those two variables, then it’s a safe bet. Now with lease options they are a few of those associated risks again we don’t have time to go into them today, but if you understand all of them then getting into lease options is very rewarding as Vincent said. Because you can walk away at any time and again I have bought properties that I wish I had never bought, it was really stupid, I never even viewed the property and I still bought it which is one of the dumbest things you can do, and if I can walk away from those houses and say, here’s the keys, I would just do it.

Juswant Rai: Okay, everyone make mistakes in their property lifetime, whether they are a beginner, really experience or wherever they are on they journeys. Everybody will buy one that they wish they had never bought. It is actually learning from that experience and thinking right, it is only a really stupid mistake if you repeat it.

Right we have got about ten minutes left, one of the things you speak about John after this call we are going to go through a couple of questions that have been emailed through. If people want to find out more information I know you talked about this before are there any sites they can go to? Or a link?

John Lee: Now Vincent and I are going to do something that I don’t think no one has done before. I want you all to get your pens ready because we are going to attempt to teach and show you how to do lease options in 12 hours. Write this link down right now, if you can get your pen and your paper, go to www.learnleaseoptions.co.uk/offer.htm and we are going to show you how to learn lease options in 12 hours.

Juswant Rai: Okay, right I have got some of the questions here, I am going to go through one or two of them, the first question has come from Tracy.

Her question is, what is the best way to negotiate and explain lease options to a motivated seller? I think you covered this earlier but it is worth covering again, what is the best way to do it?

John Lee: Okay you need to know all the strategies before you can make an informal decision, and what I would say to Tracy is all you have to do is use the uncovering technique and the way you do that is ask open ended questions, instead of saying, are you still looking to sell your house? Say what has got you selling your house? And what I used to say to people, I always find out specifically why, like give me three reasons why you want to sell your house. The more information you can draw the more solutions you can build around it like we have done deals where we have negotiated other people’s houses cheaper and we have dropped them a better mortgage rate than their mortgage company could get them. The best way to do it is uncover all the reasons, what are the reasons why people want to do this? And then ask them other questions, why should they do it now? What are their reasons? I have done a lot of training with top communicators and they said some people make decisions based on emotional reasons and they justify it for logic.

Therefore you need to find peoples emotional reasons for selling and their logical reasons for selling. If you have got both of them and give them a reason to do it now like everyone listening on this call, I will give an example, you have probably bought something you have never used before, that is a classic example on emotional versus logic, so first of you need to uncover, find the emotional reasons and find the logic, and give them a reason to do it now, find out what they want and then using your options strategy, you know your 31 different options and your BMV and how you can source properties for people. You need to create a solution for them because that is what a consultant does, you must look at the best interests of your client, as a customer that is just a transaction. That is my advice.

Juswant Rai: Okay right, the next question I think is maybe something that Vincent should be very good at answering, this is from Robert, the best effective way to source options, I think he probably means sourcing lease option deals, lease option leads, the best and most effective way to do that?

Vincent Wong: Let me make quick point here, very easy Robert, just one, and you can answer on behalf of Robert. You have got two sellers here, one has got a property with a lot of equity and the other seller has got a property with absolutely no equity, now between these two sellers who has got more bargain power with you.

Juswant Rai: Who has got the most bargaining power?

Vincent Wong: The one with the equity, okay, they have got more bargaining power because the person thinks he or she can shop around, contact different companies right? Now if you have to buy a lead, one with a lot of equity and the other with no equity, which one do you think is cheaper to buy?

Juswant Rai: It is going to be cheaper to buy the one with no equity.

Vincent Wong: With no equity and between those two sellers who is more likely to do business with you?

Juswant Rai: No equity?

Vincent Wong: Exactly because this seller has very limited option, this seller has nowhere to go with very limited options. If you can actually provide an option to this seller you will do a deal. And these leads are everywhere. You probably got some tucked up under you bed somewhere. You just haven’t found an angle to do these deals and now it is time you start going to events such as Berkshire Property Meet where you meet hundreds of property investors like yourself and try to get some of these leads where people throw them away and you say I will buy them off you I will give you 50 quid for your books. You have got quite a lot of deals worth hundreds of thousands of pounds in that. Lease option lease, what we call the unqualified leads where the sellers are motivated to sell BMV or there is little equity, they are the best candidates for lease options.

John Lee: I just want to add something; the easiest way to get leads for free is something called a host beneficiary. What this means is find someone that has got the same leads as you but not in direct competition. So for example an estate agent, they get people to buy houses so a mortgage broker will get their leads from them because they are not in direct competition or looking for the same people. Again talking about the Berkshire Property Meet, that’s actually where I met Vincent. Vincent I knew was at the top of the leads generator in this market so that’s how I got to know Vincent and that is how I am working with him.

Juswant Rai: I thought it was because you are both Chinese and that’s what you said to me.

John Lee: That as well!

Vincent Wong: all of us are created equal. Going back to Robert’s question, it is time get all these leads for nothing and do lots of deals.

Juswant Rai: I think one thing we could say Robert is, if you look at the market, a lot of people bought at the top of the market, a lot of people got 90% or 125% mortgages at the top of the market in 2007 and 2006. What are the chances that some or many of those people would now be in negative equity and some may be ready to move on. Yesterday in the Sunday Times there was an article about people that wanted to mortgage and remortgage their house. And they are actually work out the surveyor are coming out and down valuing everything. And these people were told that they needed to find £5000. Will you get a better mortgage deal?

Third and final question, how do I handle lease options via an estate agent? From Estelle

John Lee: Okay Estelle, easiest way you need to go in and you need to incentivise them and do not go in there, because the thing is in the past you would do the deal complete and then use the agent to sell and they get 1%. Now on option deals we do with agents we just give them a flat fee, £500 flat fee, saving resources as well. The best way to do it and these are the words I use exactly.

I walk in there and I say:

‘I have got a proposition for you’ and when you say proposition people listen, they say okay what proposition, I say ‘we have got a proposition that’s going to allow you twice as many properties this month, and the reason I can say that is because I have done this with 3-4 other agents, how would you be interested in having a little chat and how you can get some more commission from this’

Instead of walking in there and saying give me some properties, give me some refurbs, have you got any repossessions? What you want to look for again specific criteria is people in negative equity, people who cant sell a property, people who don’t need the equity from the house, people emigrating as well, a classic situation that we find on a day to day basis where people want to take action to do a lease option deal.

Juswant Rai: I think one thing I would say, when I made this mistake. On Tuesday or Wednesday last week I went into a few estate agents over in Reading and I made the mistake of, I don’t know I must have had a brain fart or something of trying to explain lease options to the guy. When I walked out I must have thought ‘what an idiot!’

Vincent Wong: What the estate agent or you?

Juswant Rai: I learnt my lesson from that one and I rang up a friend of mine and said I have made a mistake and he asked what did you say? And he said no you do not explain it to them. If you try and explain it to them and I was thinking I suddenly couldn’t remember how lease options worked and I thought right. You have got to keep it very simple. You have got to build that relationship with them first and go back to them.

John Lee: Estelle, never let the estate agent negotiate for you, never let them do it. I always get the estate agent to give me the details for the seller so therefore I can go and see them and therefore create a deal. This is a really important distinction to make, and if you don’t do that I don’t know anyone that can go to the agent and get very good results.

Juswant Rai: Okay. Thank you again guys, it has been great speaking to you, and it has been a lot less rushed and a lot more relaxed. I think we basically in the last two calls scratched the surface of lease options. There is a lot more to come, a thousand questions?

John Lee: A thousand and eighty nine questions.

Juswant Rai: I think what you guys will do and I will make sure we do that, is actually put something together, because there will be some cross over in some questions, if we put that together and come up with a list of some of the top questions and what I will do is actually grill you guys and make you answer some of those questions.

Vincent Wong: Make sure we have a good practice before and we will make sure we have a full breakfast.

Juswant Rai: Yes and do it over time. That web address you gave us www.leaseoptions.co.uk/offer.htm . I know you will be speaking at the Berkshire Property Meet this November so we look forward to seeing you there and I know you are speaking at the Brighton and Hove event on the 6^th of event. They are doing something in the afternoon so if you are in the Brighton area or within an hour of Brighton get down there and speak to John and Vincent in person and get some of your questions answered. You are also speaking at the Kent event, and again in November at the Berkshire Property Meet, so there are plenty of opportunities. If you want to find out more about the guys have a look at their website www.wealthdragons.co.uk and get on there and have a look at some of the stuff they have got on there. If you want to book for the Berkshire Property Meet visit www.berkshirepropertymeet.com And you can come see these guys in November.

So it has been fantastic having you guys on the line, if you haven’t had your questions answered you can email or go to the wealthdragons.co.uk be in touch with John and Vincent and be in touch with what they are doing. It has been fantastic have you on the line, it has been great having everyone else on the line as well. Have a great evening everybody and I will look forward to speaking with you again soon.