After well over 30 years as a real estate investor, I remain fully confident and convinced that control without ownership using lease options is the best strategy for all market conditions! This is how you make more money while at the same time investing less of your own money and time.
What could be a more compelling real estate investment strategy than the Sandwich Lease Option System? You make a good profit up front and another even bigger profit when the end buyer closes the deal in a year or so. In-between, you have positive cash flow by charging a rent that is higher than your lease obligation to the seller. If for so some reason the deal falls apart in the end, you never did own it and it goes back to the seller. You didn't even have full responsibility as a landlord while enjoying the high profits that come from real estate investing.
There are several variations to taking control without ownership using lease options. The two methods I prefer the most are sandwich lease options and wholesaling flipping lease options.
Wholesaling – Control Without Ownership Using Lease Options
The wholesale lease option typically doesn't allow for as much profit as when you control the entire deal because you put a lease option deal in place and then flip it to another investor that wants to hold it for the long term profits. With wholesale lease options, you have to leave some meat on the bone.
Whether you set up a sandwich lease option or wholesale a lease option, you are best off when you have an end buyer in place before you enter into a lease option with the seller. That's not always possible so your fall back strategy should be developing a list of potential end buyers. Remember, you make your money when you first invest. It's vitally important to have an exit strategy from the beginning.
Other versions are selling a home you already own using a lease option or ‘Get the Deed Subject To’. You should be familiar with all versions so you have the right one available for specific circumstances.
How Taking Control Without Ownership Using Lease Options Should Work
It's all in the way you write the contract with the seller (current owner of the property). What you are looking for is a win-win-win contract. One enabling the seller to start generating cash from the property to make the mortgage payments and/or positive cash flow. You make some money in the middle. Then, you leave some profit for the person you bring into the deal at the end such as a wholesaler buyer that holds the property for long term profits. Or a retail buyer that wants to start building equity today (lease option fee) but needs a little time before he or she can qualify for financing.
Something to keep in mind is that the seller and retail buyer probably don't understand how a lease option can work or the many variables that can go into a lease option contract. If you are flipping to a wholesaler, that person likely has at least a passing knowledge of lease options and probably a working knowledge. Helping others understand the process is one of your key roles. That's why I offer several courses giving you the detailed knowledge to confidently move into this role. You will find a list of these courses at http://wendypatton.com/products.
Nuts and Bolts of How to Take Control Without Ownership Using Lease Options
Let's say you find Sam the seller and he is opened minded to allowing you to take control without ownership using the lease option as long as his mortgage payment is covered and maybe he has a little positive cash flow each month. The first thing you need to do is make sure you have a thorough understanding of the local market that the home is located in. Here are some sample terms that you could negotiate:
Down payment: $1,700 (first month's rent plus $1,000 option payment)
Rent: $700 per month
Option Term: 2 years
Sales price: $75,000
Your total out of pocket expense is $1,700 to take control without ownership using lease options. Better yet, you will quickly recover those expenses when you put an end buyer in place. Your next step is bringing in Bill the buyer, who you prequalified, and he is excited about the opportunity of future ownership through a sandwich lease until he can qualify to purchase within 18 months by taking out a mortgage. You need that 6 month cushion between your deal with the seller and your deal with the buyer so that you are still in control when the buyer makes the purchase. That is when the bulk of your profit is made. Your contract with the buyer might look something like:
Down payment: $3,800 (first month's rent plus $3,000 option fee)
Rent: $800 per month
Term: 18 months
Sales price: $89,000
Your Benefits From Learning How to Take Control Without Ownership Using Lease Options
You quickly recover your out of pocket expenses by making a decent profit from the higher option payment and the slightly higher rent (ongoing positive cash). Your biggest pay off comes from the difference you pay in the purchase price and what the end buyer pays when he finalizes the purchase.
Circumstances will change the final profit you make but in the arrangement above you should expect a total profit from the deal to be about $17,000. By taking control without ownership using lease options and putting one or more of these deals in place each month you soon have a hefty double-digit income every month as more and more of these deals close.
By Wendy Patton
For more than 30 years, I've used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It's because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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