Tips for Managing Sandwich Lease Options

One part of sandwich lease option investing that doesn’t get much attention is managing the tenants and the property. A big part of the reason this doesn’t get much attention is because this investment strategy is mostly passive income. Meaning once you have the deal in place, there isn’t much ongoing work to generate the continuing income.

However, you are the professional in the middle of sandwich deals. You still have a responsibility to both the seller and the buyer. Fortunately, managing the seller is minimal to non-existent. As long as the seller is receiving his/her monthly check and the house isn’t being seriously harmed, almost all sellers happily sit back collecting a monthly rent check knowing they are likely to collect a big check when the house sells in a year or two.

Tenants Have Responsibility in Sandwich Lease Options

The little bit of management time that you do put in mostly involves the tenant/buyers. But keep in mind this is NOT about cleaning out rain gutters and fixing a broken water heater. The properly written sandwich lease option makes the tenant responsible for all major and minor maintenance as the future owner of the home.

In the real world, tenant/buyers can’t always make immediate and necessary repairs. Because I live in Michigan much of my investing is here also. When a furnace goes out during a Michigan winter, it’s crucial to get that fixed. Heat is necessary. When a tenant can’t make this happen, I might need to step in with a helping hand. But one of the big benefits of sandwich lease options is that my involvement and expenses are minimal. I can have a HVAC technician out to the house with a short phone call. As an investment professional, you have options to manage the cost of the repair. One option is the tenant pays as much as they can on the spot with the balance being charged to your account or the entire cost is charged to you but the tenant pays the bill with his/her next paycheck. However you work out the details, any amount that remains on your account is ultimately added to the sales price of the home paid by the tenant/buyer – as long as you write the original paperwork correctly.

Something I’m very careful about when it comes to tenant/buyers is not giving them my home address. All payments and correspondence is mailed to my office or a P.O. Box. The phone number I give them is only for a phone dedicated to my business. It doesn’t happen often but in case a deal goes sour and you have to evict the tenant, you don’t want a disgruntled, grudge-bearing tenant showing up on your doorstep. But you have a responsibility to keep open lines of communication.

Transitioning Between Seller and Tenant Occupying the Home

You are the meat in the middle of a sandwich lease option. One of your last steps putting the deal together is moving the seller out and the tenant/buyer in. Always have complete documentation of everything regarding a tenant moving in. Probably your most important thing will be to have a videotaped walk-through or check-in with the tenant. It’s really good when you show them on tape verbally acknowledging the condition of everything, whether good or bad. Hopefully not too much bad – but maybe they’ll point out something that you somehow overlooked. If so, fix it immediately.

Technically these are still tenants until they close on the purchase. It’s still important to keep the place habitable and treat them like a tenant. If you treat them like an owner, a judge might also treat them like an owner which could nullify the option. You do have the special maintenance and repair clause in the paperwork but when the tenant/buyer is first moving in:

  1. Always change the locks from the previous tenant – if you don’t change them and someone still has a key, you could open yourself to serious liability.
  2. Clean the carpets.
  3. Repair any paint problems.
  4. Make it habitable.

When you properly screen your tenant/buyers, you shouldn’t have much trouble once they have moved in. Still, this is a transition from them being tenants to becoming homeowners. During the first couple of months some may still treat you like a previous landlord. They give you sob stories about not having the rent. Most of us can’t afford to carry another family. My strong philosophy about this is, “If the tenant doesn’t pay their rent – you are paying it for them.”

Using the sandwich lease option, you have the best of all real estate investment strategies. As a temporary landlord, you receive positive monthly cash by collecting rent and you make the big flip profit when the buyer completes the purchase. You control the property but don’t own it. It all comes with very little hands on management or money out of your pocket.

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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Rent to Own Properties for Today’s Changing Market

As an investor, you have an arsenal of options available when it comes to your real estate investing strategy. You will be wise to consider several before deciding which best fits your current and future needs. There are several variables that go into your decision:

  • Investment funds you have available or can raise?
  • How much you want to make in profits?
  • How much risk you want to take?
  • How fast you want to pocket your profits?
  • Other variables specific to your needs?

Rent to Own Properties Can Be the Best of All Worlds

Rent to own properties work well in all scenarios. Especially my favorite, the sandwich lease option. These are your opportunity to collect reliable monthly rent as a landlord without the hassle of making most of the repairs. Once the deal is in place it becomes a mostly passive income stream. Based on my decades of real estate investing experience, I’m firmly convinced that lease options are the least risky but highly profitable niche for investors.

You want buyers to treat rent to own properties almost as a purchase agreement. Although they are renting, the intention of purchasing is very real. Probable buyers should have an inspection done before signing the contract. Then the buyer needs to take the step of working with a mortgage professional to develop a plan enabling him/her to qualify for a mortgage before the option period expires. This creates the mindset of buying the home. The tenant/buyer takes better care of the home. Your contract specifies they make and pay for most repairs, which saves you the time and money that typical landlords anguish over. At the same time, you collect a higher than market rent with the full expectation of a big profit when the sale closes in a year or two. This is the best of both worlds. The third best world with rent to own properties is the house is appreciating in value all of the time – even if this particular purchase isn’t completed.

Rent to Own Properties is a Solid All Around Strategy

Real estate markets change. They go through a well-known cycle. There are hot market conditions, normal markets, and cool or cold markets. Market conditions don’t change overnight but there are leading indicators. We’ve enjoyed the current hot market since about 2012. This was a sellers’ and landlords’ market. Landlords enjoyed ever-increasing rents. Rent to own investors did also. Rehab flippers enjoyed ever-increasing sales prices. Rent to own investors did also. Today, rent to own properties will continue flourishing as the market moves from hot to normal and will continue prospering even when the market eventually cools off.

Something good for buyers (and rent to own investors) is that most of the foreclosures, short sales, job losses, and other credit alignments from past years are now deleted from credit reports. But that doesn’t make it clear sailing for many homebuyers. As the mortgage market changes, interest rates have been rising for at least a year. Just as important (as a result of past credit troubles) banks are now requiring people to have better credit and longer employment histories than in past years. Rent to own properties will continue thriving in this environment while other investment strategies begin struggling.

Why Rent to Own Properties Will Continue to Prosper

The buyer’s credit score and down payment will benefit in the evolving real estate market. Rent to own properties provide a built-in mechanism to help people rebuild their credit by making timely rental payments during the contract period. This increases the likelihood that they’ll be approved for a mortgage to buy the home a few years down the road. The lease option fee applies to the down payment. Even if that isn’t enough for the full down payment, the buyer now has time and incentive to save the remainder during the option period. At the same time, sandwich lease options continue being favored by investors…

You don’t own it, no one can sue you for it, no one can put a lien against it, this is low risk investing. Your expenses are minimal because the tenant-buyer pays for repairs and maintenance. You pay a small “option fee” for control rather than a hefty down payment. That makes it low cost. Exactly what you’re looking for is a low risk and low cost investment property.

Whom is lease option investing suited for? The short answer is any investor. Beginning investors that are cash poor find it particularly appealing. As does the experienced investor that has maxed out his/her ability to obtain new financing. Also, every investor in between. Real estate investing is about “controlling” as many properties as you can. It is NOT about “owning” as many properties as you can. This makes rent to own properties ideal.

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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