Cooperative lease options are similar to sandwich lease options. The difference is you get your money sooner but it is less money than with a sandwich lease option. With a sandwich lease, you have to wait for the end buyer to make the purchase before you collect your big paycheck. With cooperative lease options, you collect your check shortly after putting the house under contract. Cooperative lease options are sometimes known as wholesale lease options.
How Cooperative Lease Options Work
When you go with cooperative lease options, you essentially create a sandwich lease but without the meat in the middle of the sandwich. What you do with a cooperative lease option is find a seller willing to contract with you the way you would a sandwich lease option (more on that shortly). Then you find an end buyer that you reassign the lease option to. You take the meat out of the middle of the sandwich lease as your fee for putting the deal together.
One thing you want to be sure of is that you don’t make the mistake of hooking up the seller and the end buyer. You have to stay in the middle long enough to reassign your interest in the house to the end buyer. Often the end buyer is another investor that finds the terms you negotiated attractive. Let’s say your cooperative lease option purchase price is $95,000 and the house has a fair market value of $125,000. You find an investor willing to pay $105,000. You pocket the $10,000 difference when you reassign the lease option to the investor.
You don’t need to tell the seller that this is what you plan to do. However, you need to make sure there is a clause in the original seller’s contract allowing you to reassign the option to purchase. You may be asking why sellers will go along with this? The simple truth is that there are always desperate sellers in any market. A typical seller in this situation might be on the verge of losing the house through foreclosure. He or she wants to get something out of the deal but they need to move fast. When you take out the lease option, you are obligating yourself to make the lease payment (until your reassign the contract). That keeps the seller from losing the house to foreclosure and the cooperative lease option leaves open a very real opportunity for him or her to recover the equity when the house does sell.
Comparing Cooperative Lease Options with Sandwich Lease Options
The primary difference between the cooperative lease option and the sandwich lease is how the money is distributed. With the sandwich lease, you collect more money but it’s spread over more time. Instead of reassigning your interest in the house to an end buyer, you write a new contract with the end buyer. That contract obligates the end buyer to pay more for the house than you have to pay. But that payday doesn’t come for a year or more when they exercise their option to purchase. However, while you’re waiting for that payday, you collect a higher rent than you are paying the original seller. Additionally, you collect a higher option fee from the end buyer than you paid the seller. With the sandwich lease option, you have three separate paydays.
With the cooperative lease option, you only have one payday. When you reassign the contract to an end buyer, you sell the house for more than you paid for it. You earn that money in a few weeks or a couple of months. It’s less money but you are paid much sooner than if you have to wait a year or more for the end buyer to make the purchase.
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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