Sandwich Lease Option
A Sandwich Lease Option is a technique that has been used for many years but the technique has been overlooked by many. To me it is the hidden gem of the real estate investing world. When executed properly, you the investor will make money with the option fee, the back end and a monthly cash flow. This means you get paid THREE ways. Essentially, you lease a property with an option to buy it, and in turn you rent it out to someone else, also granting them an option to buy it. You are in the middle, hence the reason we call it a "Sandwich Lease Option".
And where is the meat in a sandwich? In the Middle. The meat is the best part of the sandwich lease option. This is where we want to focus. How can we make the sandwich more profitable (by getting more meat in the middle)?
Here are some of the terms to negotiate when buying (with the seller) and selling (with your buyer):
- Monthly Fee (Rent)
- Length of time (Years)
- How much of the monthly fees (your rental payment) goes towards the purchase price
When you negotiate good terms with your seller you are making your sandwich lease option better; like adding a piece of cheese (this is more profit to you).
Cooperative Lease Options are a technique that I recently began teaching my students. A Cooperative Lease Option A.K.A Wholesale Lease Option is similar to a Sandwich Lease Option except the middle (meat) is removed up-front. Think of it as a sandwich where the meat has been removed. I know, many of you are thinking what is a sandwich without the meat? In other words how will you benefit from the deal?
Basically, you still find the seller and after you have the contract and the option to buy, you ‘take the meat’ and assign your option to purchase to a buyer. In this scenario, you only get paid in one way (the assignment of your option) but you get paid today. You don't make as much on the deal, but you are done with it. It is quicker and easier money then a sandwich lease option.
It is important to remember when doing a Cooperative Lease Option NOT to find the buyer for the seller. It might sound like you are doing that and in essence you really are, but you can't describe it that way or explain it that way to your buyers and sellers. You are the buyer and you are "assigning" your contract to a buyer for a fee from them to buy your contract. For example, I usually take the buyers option fee as my assignment fee for a wholesale lease option. This can be anywhere from $2500-$10,000 in my area of the country. Can you use an extra $5000 this month? To find more information on becoming a Realtor you can check out my article on getting your license HERE.