Plain and simple, sandwich lease options offer more flexibility for getting deals done than any other investing method that I have come across in my decades as an investor. Flexibility works for the seller, it works for the tenant/buyer, and it works for you. Overcoming the fear of real estate investing is easy when you use flexibility as a strength.
The Lease Option is a versatile method for solving seller and buyer problems ranging from simple to complex!
As a sandwich lease option investor, you are in the problem-solving business. Lets’ begin with a typical situation that you could come across within your first five or ten deals.
Fearless Sandwich Lease Option Problem Solving
This isn’t a highly complex situation nor is it the easiest one that you’ll encounter. But this is the type of lease option that you can expect to come your way and one that you’ll fearlessly solve as long as you have the knowledge and confidence to show the seller that they can get top dollar and that the tenant/buyer can become a homeowner.
In this situation, the seller was an experienced rental investor with a current tenant that was vacating the house. The seller wasn’t distressed or hard-pressed for money. The owner was simply open to the possibility of selling the house instead of renting it as long as they received the full market value for the house. That market value was $210,000.
As a sandwich lease investor, you overcome your fear of real estate investing simply by offering the seller your ability to bring in a highly qualified tenant that is also very likely to purchase the house for full market value. In this situation, the tenant/buyer was a little short on the lease option fee. That wasn’t a problem because the owner would have also been happy with a high-quality tenant. But in the end, it worked out to be a sale at market value.
Keep in mind that many of your high-quality tenants already have everything in place to complete the purchase except a slightly low credit score. What’s already in place is a decent debt-to-income ratio, a good job history, and enough income to qualify for a mortgage. In this case, the tenant/buyer has enough income to make a few installment payments towards the total lease option fee.
For a less qualified tenant/buyer, you would insist on a lease option fee between 3.5% and 5% of the purchase price. At 3.5% of $210,000, that would be $7,350. At 5%, it would be $10,500.
What this tenant/buyer came to the deal with was the first month’s rent of $1,600 and $2,200 towards the lease option fee (1%). This, along with a good job history and good income, made the seller comfortable that even if a sale didn’t happen, he would still have a desirable tenant in the house.
In fact, the sandwich lease option sale did happen. The tenant/buyer was able to pay an additional $400 each month towards the lease option fee. In 18 months, the lease option fee equaled $9,400. When that was applied to the down payment, all of the requirements to qualify for a mortgage were in place and the sale closed.
That doesn’t mean you want to jump into sandwich lease options by offering flexible but high-risk solutions. Based on my decades of experience and polished training materials, I help you go into flexible and creative deals with your eyes wide open. There will be caveats that you need to carefully consider.
Flexibility is about carefully listening to the needs of the seller and tenant/buyer to find a Win-Win-Win!
Overcoming the Fear of Real Estate Investing by Knowing the Caveats
Here are a couple of the caveats that the above example should make you carefully consider and why that situation was reasonable to be flexible with.
Accepting less than 3.5% of the purchase price for the lease option fee increases the chance that the tenant/buyer will walk away from the deal. There seems to be an arbitrary or imaginary number around $2,000 or $2,500 that some tenant/buyers are comfortable walking away from if circumstances don’t go exactly the way they expected. Unexpected circumstances do happen. It could be taking a little longer to improve their credit score or it could be a financial emergency. Experience shows that tenant/buyers are more likely to put more effort into completing the deal when the up-front money is between $4,000 and $6,000. In the example, the tenant/buyer’s initial lease option fee was above the low end of the arbitrary number. Importantly, they were also committed and financially capable of making monthly payments to quickly fund the full lease option fee.
The other caveat is that collecting lease option fees over a period of time requires diligent paperwork. You need to do the paperwork correctly so that the additional lease option payments are properly credited to the down payment. This is part of seasoning the funds and creating a paper trail.
Ultimately, the seller is going to have a say in flexible arrangements. Your role in overcoming the fear of real estate investing is to understand that diligent tenant/buyers are the ones most likely to complete the deal. Tenant/buyers demonstrate this by being attentive about providing everything you need in a timely manner. That can include proof of a good job and adequate income to fully fund the lease option fee.
Flexible Seller Negotiating is About Asking Questions
It should go without saying that you want to always be polite when negotiating with sellers. This is not an adversarial conversation. It’s about finding solutions for everyone. If the person called you, start by thanking them for calling. If you called them, ask if it’s a good time to talk.
You begin by doing a lot of listening to understand their situation and what they want to do. Asking questions is the best way to get them to talk. Start by asking what they have already done to rent or sell the house. Ask follow up questions if needed and then ask what they want to do now. What would an ideal solution be?
You may not have thought about it this way but a good client is one that wants full market value for their property. Someone that wants the mortgage paid and has time to complete the deal. That is a big step towards helping you overcome the fear of investing in real estate.
Paraphrase back to them what you understand they want. Clarify that you understand their circumstances. Empathy counts. As you do this, you want to sound confident. You want to sound confident that you have solutions to solve their problem. Practice building confidence if you need to. It should come somewhat naturally because you have qualified buyers that will pay full market value for the house. This is not something that other investors offer. Being able to provide full market value needs to be emphasized.
There are no out-of-pocket expenses for the seller with lease options. It will be an “As Is” sale. Not even real estate agents can offer that. Make the conversation about the seller and not you. If you can’t find a way to make it work for both of you, you can always walk away without investing or risking anything!
It’s all upside for the seller. Along with flexibility, this is how you overcome the fear of real estate investing with sandwich lease options.
Confidence and knowledge-based flexibility come from:
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Add Personalized Coaching.
- Cooperative Lease Options.
- 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.
If you found this information useful, please visit again soon at wendypatton.com.
What did you think of this article? Please leave a comment below.