I want to thank you for making me your ‘go-to’ person when it comes to getting the most out of sandwich lease options. I hope it is as rewarding for you as it is for me. Over the years, I have gotten as much out of communicating with readers and students as I have from my own sandwich lease option business. I don’t claim that I’ve come up with all the valuable information that I’ve shared. Readers and students have generously shared their insights with me as well – I hope this great relationship continues. What I want to do today is share back with you some of the best and brightest information we’ve uncovered to create successful sandwich lease options…
With great power also come great rewards when everyone wins with sandwich lease options!
Why Everyone Thrives With Sandwich Lease Options
There are three people in every sandwich lease option. Legally these are called the ‘parties to the contract’ but I like to remember that they are people first. The three people are you as the investor, the seller that needs to generate cash from a house they own, and a tenant-buyer ready to buy a home but needs a little help.
Why would an investor do a sandwich lease option? It shouldn’t be news that the investor is handsomely paid three different ways in a sandwich lease option with no risk and little/no cash required. Investors are immediately paid a large option fee in the beginning. They then earn a portion of the rent, typically for a year or more. Finally comes the biggest payday, which is the difference between the sale price paid to the seller and the price that the tenant-buyer pays at closing. (There is an example deal spelling this out in the next section.)
Why would a seller do a sandwich lease option? There are many, many reasons why sellers like sandwich lease options but the bottom line is they want to generate cash from a house that they own. One reason is the seller has two houses that both have mortgages to be paid – cash is needed quickly to avoid financial disaster. A few of the common situations include vacant houses, the seller needs debt relief, the seller has little equity, a listing is not selling, or a few minor renovations are needed to sell for full retail. And I assure you there are many more reasons!
Why would a tenant-buyer do a sandwich lease option? As with the seller, there are many, many reasons why a tenant-buyer wants a sandwich lease option. At the root of most reasons are tenant-buyers close to qualifying for a mortgage but needing a little help to get it done. This is often because their credit score isn’t quite up to par or maybe they love a home but they need a little more time to save the full down payment. There can also be other reasons such as wanting to make sure the home and neighborhood are a good fit for them before becoming homeowners.
The three important people are a knowledgeable investor capable of putting the deal together, a seller needing a creative solution, and a tenant/buyer capable of completing the purchase before the lease period expires.
Example of a Win-Win-WIN Sandwich Lease Option
Every situation is a little different, but this is an example of what you could come across as a sandwich lease option investor.
Happily, Stanley and Kinsley just got married and will be moving into Kinsley’s home after their honeymoon. But life is complicated, and Stanley’s house will be vacant because of some lingering litigation from his divorce a couple of years ago. After paying for the wedding and honeymoon, there is no way the newlyweds can afford the mortgage on both houses. Stanley’s vacant house is 60 miles away from where they will be living. They don’t want to be long-distant landlords, but they ran a rental ad because they didn’t know what else to do.
Skylar just finished her third cooperative lease option and is excited to grow her career with a full sandwich lease option. She sees the rental ad and calls using a script proven to quickly learn if a landlord is interested in the benefits of a sandwich lease option. Everything starts falling into place. Stanley and Kinsley realize that the sandwich lease option that Skylar is talking about could be a great answer to their long-distance landlord problem. Everyone needs more information, so they agree to meet at the house the next day.
It doesn’t take long for Skylar to understand that this house and this neighborhood are a great match for a sandwich lease option. Skylar knows the exact person on her tenant-buyer list that will want this house (Noah). As they talk, Stan and Kinsley learn more about how a sandwich lease option works. Stan is surprised to learn how generous Skylar can be with the terms of the deal. He’ll need to talk to his ex-wife about it but sees no reason why she won’t agree with the sale price that Skylar is offering. Better yet, the rent on the house will fully cover the mortgage and even put a few dollars in his pocket until his legal issues with his ex-wife are expected to be resolved in about six months. This might even help them solve the legal problems faster.
Stan (the seller) is all in as long as the paperwork matches what Skylar has told him.
The Paperwork in Three-Part Harmony
Skylar already knows that Noah will also be excited about the sandwich lease option that she has proposed to Stan. She sets the paperwork up so that Noah will pay $1,450 rent each month and she will pay Stan $1,050 rent each month. (This is done with two separate contracts.) The financials work out so that Skylar clears $400 from the rent each month and Stan will still have $200 after paying the mortgage.
There is also the matter of the lease option fee. Skylar will pay Stan a lump sum of $1,500 for the exclusive right to purchase the house for $255,000 within the next 18 months. Stan really likes that he will get a check for $1,500 next week – right before the mortgage is due. Skylar already knows that Noah is ready to pay $280,000 for the house if he can lock the price in today with an $11,200 purchase option fee to finish the sale within the next 14 months. The $11,200 is 4% of the purchase price and will go towards the 6% down payment that he is working at saving. Along with the $400 from the rent each month, Skylar’s portion of the purchase option fee will be another $9,700. When the sale closes in about a year, Skylar will also collect the difference in the sale’s prices ($280,000 – $255,000 = $25,000).
Everyone gets what they want – Everyone is happy!
How Dollars Add Up For Sandwich Lease Option Investors
Let’s add up the dollars that Skylar earns for putting together this sandwich lease option that works for everyone:
Skylar’s purchase option fee – $9,700
Skylar’s rent earnings – $4,800 ($400/month X 12 months)
Skylar’s earnings on the sale – $25,000
Skylar’s Total Earnings – $39,500
Negotiate with Integrity – don’t promise what you can’t deliver.
Flexibility in Sandwich Lease Options Will Find the Right Answer
Examples are only examples. You are going to come across sellers and tenant-buyers with different situations that require different solutions. The wonderful thing about sandwich lease options is that the numbers can be moved around in countless numbers of ways. As the investor, you can be the most flexible person in the deal.
Investors only care that there is a spread between the option fees, rents, and sale price.
You can easily offer two or three versions to find the best solution for everyone. You can shift some of the seller’s option fee into higher rent. You can increase the option fee in exchange for a smaller sale price for the tenant-buyer. You can pay a higher option fee to the seller in exchange for you collecting a bigger portion of the monthly rent. You can just as easily do the opposite of each one of those three versions.
You use a version that tweaks all three numbers until everyone is excited and happy with the deal!
There are always three kinds of money – money now, money for months to come, and money in the end!!!
- Your Wealth Building Arsenal.
- Advanced strategies for Buying and Selling with Lease Options.
- Investing In Real Estate with Lease Options.
- Cooperative Lease Options when the time is right.
- Expand to Get the Deed “Subject To.”
- Add Personalized Coaching.
- 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.
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