Every state, city, and town has motivated sellers. When you can pay close to the full retail price for houses, sandwich lease option sellers are easy to find. I strongly suggest looking for nicer homes that require little or no work. The best choices are typically in the median price range and slightly above. There are several advantages to this. These are the most abundant houses on the market, which means the most sellers and buyers. These will also be the easiest for the sandwich lease option tenant/buyer to obtain a mortgage on when the time comes. These are also the houses that bring the most profit for the least expense.
What I’ve learned with sandwich lease options builds a real future that can set you up for life!
Every sandwich lease option deal is different. What I show you here is the same as what you can generally expect in many situations but you will need to take into account the specific circumstances for each situation. As the investor in the middle, it’s your role to put together a win/win/win scenario where everyone comes away feeling like a winner.
A Motivated Sandwich Lease Option Seller
This basic deal comes directly from my files as an example of what any investor can easily put together. The numbers will vary depending on your specific location but the basic deal looks like this:
I ran an advertisement looking for a home in a decent neighborhood. The ad read:
Company looking for 3 – 4 homes in the [name neighborhood] area for a long-term lease. Call 222-333-4444.
A homeowner answered the advert. Her Realtor® listing had expired without her being offered her asking price of $189,000. Several others answered the advert but Barb was the most promising because she had an interest in selling as well as being open to a long-term lease. It only took a short conversation to determine that her definition of a “win” was completing the sale at no less than $185,000.
Clearly, this sandwich lease option was going to be very close to the full market value of the house. No big deal. It only meant that I had to look at other terms of the sale to put the deal in my “win” column. Most other investors would have instantly walked away because they would not see any meat on the bone for them.
I encouraged Barb to do most of the talking. Besides her interest in a long-term lease and her asking price for a sale, I also learned that she had developed physical ailments preventing her from doing the upkeep and repairs on her own home. She wanted to move into a tenant/landlord relationship that required the landlord to maintain the property. She had found a home on a lake that she could get into for $1,000 cash. That is all the cash she needed from the deal to lease the house she wanted to live in. Completely making her happy required that I assume all maintenance for the house I would lease from her.
Next, I figured out that it would cost me about $4,000 to replace the carpet and paint the interior of the house. This would attract a quality tenant-buyer for a sandwich lease option. A quality tenant-buyer that (experience told me) could close the deal in a relatively short time – 12 to 18 months. I would be in the home for $5,000. About 3% of the $185,000 purchase price.
Your meat in the game is the financial difference between what you agree to pay for the property and what you sell the property for.
I needed to look at the rest of the scenario and possible terms of the deal. Annual appreciation was expected to be between 6% and 7%. That meant I could expect the value to increase more than $11,000 the first year. That more than covered my initial $5,000 cost. Now, I knew I had at least a win/win deal but I needed to bring in a tenant/buyer to complete the win/win/win formula.
A Motivated Sandwich Lease Option Buyer
Immediately after signing terms with Barb, I ran another advert looking for a tenant-buyer. Alexa was one of the first people to respond to the ad. She was interested because the ad didn’t specify no pets and she needed a place with a yard that allowed her seven dogs. I always allow pets unless the terms with the seller say that I can’t. Allowing pets is often a key to finding tenant-buyers willing to put down a significant lease option fee. The tenant-buyer might start by talking about a ‘refundable deposit’ but a sandwich lease option requires a ‘nonrefundable option fee’ (instead of a refundable deposit).
Alexa had $10,000 saved towards purchasing a home. But she had poor credit and mortgage brokers wouldn’t work with her. By me accepting the $10,000 as a purchase option fee, Alexa was able to get into a home with her seven dogs and be on the road to purchasing a home.
This created the final piece for the win/win/win formula. As soon as the deal was in place, I walked away with $5,000 in my pocket.
Here’s how my numbers worked out:
Option fee to seller (Barb) -$1,000
Improvements -$4,000
Option fee from tenant/buyer (Alexa) +$10,000
Left in my pocket +$5,000
I also shifted the maintenance requirements to Alexa. Going forward, I had to pay Barb $1,100 a month in rent but I was collecting $1,450 from Alexa. That put $350 in my pocket each month until Alexa exercised her purchase option.
Alexa’s purchase option price was $225,000 with an escalation clause of 6% (appreciation) if she didn’t complete the purchase within 18 months. After accounting for my upfront costs, positive rent cash, selling price, and related transaction costs, I cleared $43,700 from the entire deal. All by controlling the property without owning it!
In the end, the seller got her full asking price (win), I made a respectable profit (win), and the buyer owned a home with equity (win).
The sandwich lease option is only one of the ways to control a property with little or no cash. Top real estate investors use the Wealth Building Arsenal to fully understand all of the ways that lease options can be put together. The sandwich lease option gets the most attention simply because it is by far the most profitable. But that can mean if you define your profit threshold at $30,000 (yours may be different) and the deal you are looking at only comes in at $17,000, you walk away because it is not worth your time. That’s where cooperative lease options come in because these take less time and effort and therefore work at a lower profit threshold.
The Wealth Building Arsenal has everything needed from beginners to highly experienced investors with plenty of room for all of us to make a handsome profit.
From your 1st deal to your 250th deal, everything about Lease Options is covered right here:
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- You’re Wealth Building Arsenal.
- Cooperative Lease Options.
- Add Personalized Coaching.
- Expand to Get the Deed “Subject To.”
- Round it all out by Working with Realtors.
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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