Top real estate investors have a full understanding of all the ways lease options can be put together. What gets the most attention is the sandwich lease option simply because it is by far the most profitable. But that can mean if you define your profit threshold at $20,000 (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.
What to do when there isn’t enough meat in the sandwich.
The $X, $Y, and $Z of the Lease Option Deal
When you begin talking to a prospective seller, you don’t know what the final deal might be worth to the seller, to you, and to the tenant-buyer. That’s why using the right script at the beginning of the conversation is so important. First, you need to establish your credibility and trust with the seller, and only then does the conversation move quickly to the numbers that will be involved. For a sandwich lease option, this is the $X, $Y, and $Z of the deal (X, Y, & Z, being price, payment, and length of time).
When the conversation shows those numbers will come reasonably close to your profit threshold for a sandwich lease option that is the road you continue the conversation going forward. It might take a little more explaining and negotiating but it is worth your time to pursue the more profitable sandwich lease option.
But there will be times when the seller isn’t getting to your threshold. The deal just doesn’t make enough money to be worth your time in the long run. Less creative lease option programs only give you two choices at this point. Either walk away from the deal or accept that you have to put in more time and effort for less profit. But I didn’t like either of those options, so I came up with the creative choice of the cooperative lease option.
Cooperative lease options work for beginners as well as quick-turn profits for all of us.
Cooperative Lease Options Make $X and $Y Work Alone
Time is money and $Z is time. When you reduce the time you are in the deal, you can be happy with a smaller profit. Of course, you need to run the numbers through the easy-to-use spreadsheet in the sandwich lease option material to figure this out.
The cooperative lease option becomes the right answer in two or more situations. It’s ideal for the person just getting started with lease options that need a fast payday (after all $Z is time). It also works well for experienced investors when $X and $Y (price and payment) work but not $Z. There can be several reasons that $Z doesn’t work. $Z is mostly about the rent that will be paid until the tenant-buyer completes the purchase. The rent spread is the difference between what the tenant-buyer pays the option investor (you) each month and what you pay the seller.
If the rent spread is only $50, it might not be worth your time to stay in the middle of the deal. Your time could be better used putting more profitable sandwich lease option deals together. Another time the rent spread might not work for you is if the seller will not give you a rent credit each month. A rent credit increases your equity in the deal each month. That means your time is spent building equity until the tenant-buyer completes the purchase, which is when you collect that equity. So, $Z is about time and if you won’t make enough money for your time, you can still consider earning $X and $Y by going with the cooperative lease option.
The cooperative lease option is about time well spent on the deal.
How to Make the Cooperative Lease Option Work for You
The cooperative lease option for the experienced options investor is still a WIN-WIN-WIN for everyone. Including the tenant-buyer. In this version of the cooperative lease option, you don’t wholesale the option to another investor. Instead, you flip your option directly to the tenant-buyer.
A cooperative lease option is similar to a sandwich lease option except that the middle (meat) is removed up-front. Think of it as a sandwich where the meat has been removed. This works for anyone that studies all of the materials but works especially well for experienced sandwich lease investors because it does require contracting with the tenant-buyer (and then getting out of the deal).
You take the “meat” ($X and $Y) out of the sandwich and make the lease option directly between the seller and tenant-buyer. You’re out of the deal fast but made a decent profit based on your knowledge of how to put the deal together.
You still find the seller and after you have that contract (the option to buy), you ‘take the meat,’ and assign your option to purchase to a tenant-buyer. In this scenario, you only get paid for the assignment of your option but you get paid today. You don’t make as much on the deal, but you are done with it. It’s definitely quicker and easier money than a sandwich lease option.
But the devil is in the details of the cooperative lease option. It’s important to remember that you’re NOT finding a buyer for the seller. You are flipping your lease option contract to the tenant-buyer. They still have the option to buy several months from now or walk away from the deal if they decide it won’t work for them.
Something to remember is that a cooperative lease option has many things in common with the sandwich lease option but there are important differences. There are differences in the process and checklist and of course, there are different contracts involved. And all of it is right below.
Wendy’s Tip
There are always unexpected costs in any deal and, therefore, I like to make sure that I always have extra profit built into any real estate transaction.
Start investing in Real Estate with Lease Options today!
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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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