Sandwich Lease Options – Details of the Paperwork

The sandwich lease options concept is pretty straightforward and easy for most investors to understand. However, there are a lot of details that go into the paperwork the needs to be drawn up. Here, I bring to your attention some of the most important requirements that go into sandwich lease options.

I’ll begin by sharing how I organize the paperwork. For sandwich lease options, I establish two separate files. The first is for the paperwork involving the seller. This contains all of the paperwork the seller and I will be signing. The second file includes all of the paperwork that the end buyer (my tenant) and I will be signing. Both of these files go into the same folder that I title with the house address. Nice, neat and tidy. Everything for sandwich lease options is easy to find when needed.

Sandwich Lease Options – Three Main Documents

The three main documents can be reduced down to one or two documents but everything remains clearer as to the intent when they are written as three distinctly separate documents. The primary documents for sandwich lease options are: 

  • Rental/Lease Agreement
  • Sales Agreement
  • Option Agreement

You’ll need at least four copies of each. You need one set of two for you and the seller and a separate set for you and the end buyer. I prefer for everyone to have their own copies with original signatures.

Both sets of paperwork will be close to the same but there will be important differences. Most notably, the different dollar amounts that determine your profits from sandwich lease options. One important difference is you’ll require the seller to maintain insurance on the house and put you on the policy as “additionally insured”. You will also want the seller to sign off on an “Affidavit of Liens”, a “Sellers Disclosure”, and “Bank Authorization”.

Protecting Yourself and Your Tenants in Sandwich Lease Options

Although you have the seller sign an “Affidavit of Liens”, you still want to have the title researched to be sure there are no liens or that you at least know what the liens are. In most states (probably all states), you cannot purchase title insurance because with sandwich lease options, your name is not on the title. That is the reason for the “Affidavit of Liens”. It says that the sellers are not aware of any pending liens and that should any arise, you will be formally notified. You can never be sure that the seller didn’t recently have major repairs made to the septic system and failed to pay for it.

The title work will also show the names of all owners on the title. More than once, there has been a divorce involved where one spouse has full ownership in the divorce paperwork but the title was never cleaned up. Something else I prefer to do is have both the wife and husband (all owners) sign even when only one of their names appears on the title. The name is different in various states but there is something called “dower rights” that give both spouses rights to the house even when only one of their names is on the title.

Something else that is vitally important to sandwich lease options is recording the “Memorandum of Option” with the county. It’s not good enough to only have this document notarized. Recording it with the county puts the world on notice that you have a legal interest in the title. This makes it almost impossible for the current owner to refinance the home or sell it without your signed approval.

The paperwork is vital to your successful ability to create sandwich lease options, so don‘t skip any steps. Until you have several successful sandwich lease options under your belt, you need to have the paperwork reviewed by a competent attorney before signing it.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Options 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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Rent to Own Properties

Rent-to-Own-EBook-Cover_medthumbI continue writing about rent to own properties because this is the best win-win scenario that you will find without a full purchase price cash out on a property you are selling. Also, when it comes to rent to own properties, there are so many possible variations to how the contract is written that it’s worth highlighting different variations from time to time and repeating some as the readership grows.

One important key to rent to own properties is that the buyer has a reasonable chance of improving his or her credit score to the point of qualifying for a mortgage. The down payment usually isn’t as big of issue because most of that should be covered by the option to buy fee being applied to the down payment.

Rent to Own Properties Agreement

What leads to successful rent to own properties deals is a solid and detailed agreement. The three most important provisions of the contract are the price of the home, the cost to rent until the purchase is completed, and the deadline to complete the purchase. Also, what the option fee is and how much will be applied towards the down payment.

Other important language needing to be in the contract is exactly who is responsible for repairs and maintenance during the rental period. Often, the buyer/renter is responsible for routine repairs and maintenance but this should be spelled out in detail. For instance, the seller should maintain insurance on rent to own properties until the sale is final. Therefore, a major cost such as a tree falling on the house should be the responsibility of the seller. However, replacing a worn out refrigerator is the responsibility of the buyer. This can be written into the contract as a dollar threshold along with an agreement of how the dollar value of a repair is determined.

Something else to consider is if additional funds will be applied towards the purchase price. In the past, this has sometimes been a portion of the rent. Clearly keeping the rent payments separated from purchase payments is best done when the buyer/renter writes two separate checks for the rent and any money to be applied towards the purchase.

Two Basic Rent to Own Properties Arrangements

The most common rent to own properties arrangement is a lease option. This typically involves a lease option fee of between 3 and 5 percent. The lease option time frame is typically between one and three years. The buyer/renter has the option to buy but is not required to complete the sale. However, the option fee is forfeited if the buyer does not complete the transaction. The seller cannot sell to anyone else during the lease option period.

The other basic rent to own properties arrangement is the lease purchase. In this less common scenario, the buyer/renter is required to complete the sale. This arrangement provides the seller with more security that the sale will be completed. However, it’s not absolute security because the entire deal still relies on the renter/buyer being able to qualify for a mortgage from a third party. This arrangement does place the renter/buyer at higher financial risk because if he or she fails to complete the sale within the allotted time, a civil lawsuit for failure to complete the contract can be brought against the renter.

The best rent to own properties usually involve a buyer that is on the cusp of being able to qualify for a loan. Their score is only slightly below the requirement and they have a solid plan to bring it up to qualify within a short period of time. It’s a good idea for the buyer to work with a mortgage broker to learn the quickest way his or her credit score can be improved before signing the lease to purchase contract. That’s what makes win-win rent to own properties.

Real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. That makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of the property for a couple of hundred dollars. You then put an option buyer in place that takes on most of the homeownership responsibilities until they make the purchase and take on full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.

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.

If you found this information useful, please visit again soon at wendypatton.com.

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Cash Out or Reinvest

There are many ways to raise money to invest in real estate. Or if you already own investment real estate, you could decide to sell and cash it out. The question is if you should cash out or reinvest? Before you answer that question, you need to ask yourself what you will do with the money if you cash out. You could use the money to fund a retirement account like a 401k or IRA but then you still need to find a way to invest and grow that money.

Save-Money[1]
Do you want the money in the stock markets where a self-serving financial adviser is making your investment decisions or at the least, a self-serving board of directors makes all of the financial decisions for a corporation that you personally make a decision to invest in? When making the decision to cash out or reinvest, you could use the money to start you own business. At least you’d still be in control. One thing you almost certainly don’t want to do is put the money in CDs or a saving account paying less than the rate of inflation.

 

Cash Out or Reinvest? – Reinvest

You could invest in gold as many people have done over the past few years as a hedge against hyperinflation. So far, the hyperinflation hasn’t materialized and as the economy has stabilized, the value of gold has declined over the past few years. Real estate is what has been appreciating those same years, out-pacing inflation.

Deciding to cash out or reinvest leans heavily towards reinvesting. When your investment property is appreciating in value and turning a positive cash flow monthly, the logical decision should be to stay in real estate. What you should do is take the time to study the current market. Ask yourself if your current investments are the best investments you can be holding? When it comes to the cash out or reinvest question, the real question is if your current investments are the most profitable that you can be holding.

Cash Out or Reinvest – Find Something More Profitable

First, look at your least profitable investment property. Can you sell that property to invest in one that is more profitable?  Maybe, you don’t even want to sell your least profitable. Can you use existing properties to cross-collateralize a new investment property to further grow your real estate empire? As I’ve said often, real estate investing isn’t about fully owning the most properties; it’s about controlling the most properties. Using existing properties to finance another property could well be your best answer when deciding to cash out or reinvest.

Let’s say that you have an investment property that currently has about a $150,000 mortgage. It’s a 15-year mortgage but you can pull $25,000 of equity out by refinancing. That will raise the cost of the monthly payment on that property by about $35. If that property is worth keeping, it’s certainly paying much more than $35 a month in positive cash flow. Now, you use that $25,000 cash out to invest in another positive cash flow property. This is truly leveraging your investment money because you end up with another profitable investment and another property that is appreciating in value.

What is always smart is to be constantly asking yourself if it’s better to cash out or reinvest. Too many investors get into a property and forget about it. They go year after year without asking themselves if there is a better investment opportunity that they should be pursuing. Or if they should be looking for ways to leverage the investment money they already have. From my experience, even part time investors should be looking for a new real estate investment opportunity about every 18 months. Not only do you have the opportunity to leverage your money, but the more real estate that you control, the more your investments are diversified.

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.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

Making the Leap to Commercial Property Investing

If you have experience in residential real estate investing, now is the time to consider moving up to the investing big leagues. While residential real estate is a profitable business, the serious money is made with commercial property investing.

Many investors are afraid to make the leap from residential to commercial property investing. They think it’s to complicated. While it is different, it’s not something to fear. Once you make the change you won’t want to go back to residential. Here’s the easy way to make the leap…..

Commercial Property Investing Often Begins With Apartments

A good strategy for moving into the NFL of real estate investing is starting with apartments. Apartment buildings with four units and less are considered a residential investment by the banking community. Banks will require that you personally guarantee any loan you take out. Five units and more are considered commercial property investing. Loans for these properties are almost always nonrecourse, meaning they are only secured by the property. Your personal credit and assets are not at risk.

commercialpropertyinvesting Commercial property investing brings more opportunities and typically more profit than residential investing.

Moving up to commercial apartments makes perfect sense if you already have experience with residential properties. All you are really doing is moving up from a few tenants to multiple tenants. However, residential is more hands on than other commercial property investing. Most commercial properties don’t have tenants calling with plumbing problems at 2:00 a.m.

Networking Your way into Commercial Property Investing

When it comes to commercial property investing, you need to think about networking. Commercial real estate investors benefit by staying in contact with a network of professionals involved with commercial property investing. Often the best deals are done without the commercial property ever being listed. These are called “pocket listings”. An “in the know” realtor is aware these properties are for sale but they aren’t listed in the MLS. Typically, the seller doesn’t want a bunch of potential but not serious investors constantly touring the operating business. The realtor in the know only brings around the most serious buyers. But because of this arrangement, the property is listed at a nice discount to attract serious buyers.

Besides starting your commercial property investing career with apartments, consider other strong positive cash flow properties such as self-storage, mobile home parks, senior living, and offices. Look for investments that appeal to a wide cross section of renters. Multi-use properties are easier to keep rented out. However, there can be more profit in specialty use properties such as restaurants. But with that comes the risk of long periods when the property sits vacant.

You need to Learn About Commercial Property Investing

Market and sector knowledge is critical to your success when moving into commercial property investing. If you have personal knowledge about a particular commercial sector, stay with that sector. If you have no knowledge about a sector, gain the knowledge you need before investing. Even if you’re only the landlord, you don’t want to invest in a hotel if you don’t know anything about the hospitality industry. Same thing with the manufacturing sector. You don’t want to own an industrial strip if you don’t know the best use of the property to maximize cash flow.

Different formulas are used with commercial property investing. Along with sector knowledge, you need to learn new profit and loss formulas before investing in commercial properties. In residential you may have only bought properties for 75% of after repair market value or rentals that cash flowed 20% above expenses. In commercial real estate, you need to understand cap rates, net operating income, and loan to value ratios. These are not difficult but you need to fully understand what each means and how they affect your profitability before moving into commercial property investing.

Real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. That makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of the property for a couple of hundred dollars. You then put an option buyer in place that takes on most of the homeownership responsibilities until they make the purchase and take on full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.

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.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

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