Control Without Ownership Using Lease Options

Working smarter rather than harder is the best business strategy. That’s exactly my concept behind the control without ownership using lease options  series. The exception being lease options have a highly profitable twist. Control without ownership is about working smarter instead of working your bank account.

Not only do lease options require much less money, lease options will always have a much higher cash-on-cash return. That’s pretty much inevitable considering the sandwich lease option generates a minimum of three profit streams compared to one(sometimes two) profit stream  when you own the property outright. I’ll put some emphasis on the three profit points near the end of this blog, but let’s begin with why the cash-on-cash return is so much better when you take control without ownership using lease options.

Why Control Without Ownership Using Lease Options Earns Enormous Cash-on-Cash Returns

The cash-on-cash formula is very simple but also very important.

This formula simply calculates how much cash you earn compared to the amount you invest. It doesn’t include money that you borrow or equity that you might have in a property. It only involves the cold hard cash you invest in a property and the cold hard cash the property earns for you. Cash you can do anything you want with – cold cash!

Only two numbers are needed to make this calculation. You need to know how much cash "flowed" to you from the investment and how much cash you invested. Dividing Cash Flow by Cash Invested equals your Cash-on-Cash Return.

A simple bank savings account demonstrates how this works. I’m going to use a simple interest rate instead of compound interest to keep the math easy. You deposit $10,000 into a savings account at the beginning of the year that pays 2.5% annual interest. At the end of the year, that $10,000 has earned $250 of interest.

The cash-on-cash formula is: 0.025 = $250 / $10,000.

The only thing the formula did is convert the 2.5% into a ratio. A 0.025 cash-on-cash ratio that is very, very low.

When you have control without ownership using lease options, it’s more than reasonable to expect a cash-on-cash return of 1.00 (100% interest rate) or much, much higher. This means investing $10,000 of your cash both returns your full $10,000 plus earns you $10,000. At the end of the deal, you could have $20,000. Of course, that is much better than the $10,250 you could have had by simply putting it in a savings account at 2.5%.

You don’t need $10,000 to get started. It’s just a nice round number for the example. You can easily get started for $1,000 or less.

Earning that 100% by having control without ownership using lease options is where the three profit streams become critically important.

3 Profit Streams Through Control Without Ownership Using Lease Options

I frequently talk about the three profit streams that a sandwich lease option provides to you, so I’m going to be brief here.

  1. You make money from the lease option.
  2. You make money on the monthly rent.
  3. You make money when the house sells.

But you never own the house.

Your Sandwich Lease Option Cash-On-Cash Rate of Return

Let's say for example you talk with Sam the seller and he sees how he will benefit by allowing you to take control without ownership using the lease options when his mortgage payment is covered and he receives positive cash flow each month.

Here are some sample terms that you could negotiate:

Option payment to Sam: $1,000.

Rent: $700 per month.

Option Term: 2 years.

Sales price: $75,000.

Your cash expense is $1,700 to take control without ownership using lease options. Best yet, you almost immediately recover that expense as soon as you put an end buyer in place.

Your next step is bringing in Bill the buyer, who you prequalify. He is excited about the opportunity of future ownership through a sandwich lease when he qualifies to purchase in 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 Bill the buyer might look something like:

Option payment: $3,000.

Rent: $900 per month.

Term: 18 months.

Sales price: $89,000.

  1. Your first profit point is the $2,000 difference in the option you pay Sam compared to the $3,000 you collect from Bill.
  2. Your second profit point continues every month for the next 18 months when you collect $200 more in rent each month (totals $3,600).
  3. Your third profit point comes when Bill completes the purchase for $14,000 more than you owe Sam.
  4. Your total earning are: $19,600 ($2,000 + $3,600 + $14,000).

So how much is your cash-on-cash return?

Your cash expense for putting this deal together was $1,700. Keep in mind that you recover that $1,700 plus make $2,200 ($3,900 - $1,700) as soon as Bill the buyer comes on board. There’s good logic in saying that you really didn’t have anything in the deal. But since you did have $1,700 at very low risk, we’ll use that for the cash-on-cash formula.

CASH-ON-CASH Return Formula:

11.53 = $19,600 / $1,700

That’s a phenomenal cash-on-cash rate of return!!

You can convert that back into an interest rate by multiplying by 100.

11.53 X 100 = 1,153%  

Compare that to a savings account interest rate of 2.5%. By taking control without ownership using lease options, your rate of return is 461 Xs more than what most money is earning in a savings account.

Now, imagine that you roll part of that almost free money into another sandwich lease option. Your cash-on-cash return is almost unlimited because you no longer have any of your original investment in the next deal or any deal after that.

By taking control without ownership using lease options, you use little or no money and take very little risk. That’s Right! Say Goodbye to the expensive, high maintenance rental business. Say Hello to sandwich lease option investing!

What you need to do now is TAKE ACTION!

By Wendy Patton

For more than 35 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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