Day: June 28, 2016

I’ve written extensively about sandwich lease options where you make a minimal investment but get paid three times – an option fee when you sell the house, a monthly income during the lease period, and a profit when the house is bought in the end. Another version is cooperative lease options also know as wholesaling lease options. Using this version, you won’t make as much money but you will make money faster.

This version is typically best suited to the beginning investor that has little operating capital although any investor can use it when the opportunity presents itself. Essentially, you still need to find another buyer. If it’s another investor, you’ll need to wholesale by leaving meat on the bone for the investor. But it could be an end buyer that you sell to for full retail.

Getting Paid for Cooperative Lease Options

In any scenario of the cooperative lease option, you only get paid once compared to being paid three times in the sandwich lease option. In the cooperative lease option, the way you get paid is by reassigning your lease option to another person and charging more for the reassignment than you paid for it.

This is faster and easier than a sandwich lease option. In the sandwich lease, you’re in the middle of the deal until the end buyer makes the final purchase. In a cooperative lease option, you are in and out of the deal quickly. No need to semi manage the property until the purchase is made. As with most creative investment techniques, there are multiple ways of setting up the deal.

Cooperative Lease Options are About Flipping Lease Options

With cooperative lease options, one of the most common is that you arrange the original sandwich lease. The original contract must specify that you can reassign the contract. Then, through your networking efforts with other investors, you find another investor that has an end buyer looking for a lease option. You have the house under a sandwich lease agreement but another investor has the end buyer. You essentially flip the sandwich lease to the other investor that ultimately puts an end buyer in place.

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 another 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?

Another Way to Write a Cooperative Lease Option Agreement

One of the best things about being a real estate investor is your ability to write contracts in many creative ways. A more profitable version of the cooperative lease option is for you to have the end buyer. You keep the contract in place between you and the end buyer until he or she is ready make the final purchase. But maybe you aren’t able to keep up your end of the sandwich lease purchase in the end. Who knows where your finances might be two years down the road?

You might have to bring in another investor to assign your lease option to and he or she makes the purchase from the original seller and then sells to the end buyer. In that scenario, you are able to collect the higher lease option fee from the other investor and the higher rent until the final purchase is made. What the cooperative lease option does is flip to the other investor the difference between your agreed to purchase price and what the end buyer is paying.

Real estate investing is all about finding creative solutions that work for you and others.

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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I write a lot about leasing with the option to purchase because it’s at the top of my list for how to creatively acquire property for very little money. However, I also frequently acquire homes using subject to deals (aka get the deed). Anyone can use this financing method but few do because many retail buyers even think it’s illegal. It’s not.
Buying subject to means that you take over the existing loan on the mortgage (without putting your name on it). The reason some people think that is illegal is because since the 1970s or 1980s, most mortgage contracts have a “due on sale” clause. That implies that the full sales price from the original sale must be paid off if the home is sold. This is a contractual issue. Not a legal issue. If the loan holder wanted to enforce that contractual clause, they could. They would have to incur their own legal costs to do so.

Subject to Deals (aka get the Deed) are for Investors

Subject to deals are a form of owner financing. The current owner already has financing in place. Instead of the investor going through the painstaking task of applying and being approved for a new loan, the investor simply takes over the sellers existing loan. The seller can make a profit on the deal but that becomes a second mortgage that the seller puts in place.

Like most creative financing deals, there are several ways these deals can be put in place. The one thing that needs to happen is the terms of the original loan contract need to be adhered to. However, there are three common ways that subject to deals are put together. One is for the investor to obtain the original loan account number, mailing address, and due date to make the monthly payments. As long as the payments keep coming, the lender isn’t likely to call the “due on sale” clause (no matter whose name is on the check).

Another common scenario is for the investor to send the loan amount plus the amount for the second mortgage directly to the seller. The risk here is that the seller simply pockets all of the cash without keeping the original loan current. This is not a preferred way to write a subject to deal contract.

The third common method is using a third party to distribute the money. The investor sends the money to a third party (essentially an escrow company) and that company sends one check to the original lender and another check to the seller for the second mortgage.

Why You Would Invest in Subject to Deals

One main reason you want to invest this way is because you can take ownership of the property without putting up much of your own money. The other is because you don’t have to take out a new mortgage. Taking out a new mortgage takes time and money – if you can qualify. You’ll be filling out long application forms when you don’t know if you’ll even qualify. If you do qualify, at closing, you’ll be paying all kinds of loan fees, setting up escrow accounts and who knows what other costs will be slipped into the loan. A common term for many of the loan costs is “garbage fees”. It makes a lot more sense to take over an existing loan where all these costs and troubles have already been taken care of. You simply take possession of the house and start making the existing mortgage payments.

There are many reasons why a lender won’t call the loan due as long as it stays current. Beyond the legal costs, the government keeps count of nonperforming loans and accesses punishment to irresponsible lenders that have to take a property back. Something else to keep in mind is that the investor is taking almost no risk. Even if something goes wrong with the loan and the house is foreclosed on, it’s the seller’s name that is still on the loan. In subject to deals, it’s the seller that takes the hit on his or her credit report rather than the investor.

Each of my articles are intended to help investors find creative and low cost investment techniques.

For more than 30 years, I’ve used the Sandwich Lease Option System and Subject to Deals 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.

By Wendy Patton

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.