The basic strategies enable you to accomplish amazing deals in the big world associated with how to find rent to own properties. But there is always something new to learn. Advanced strategies are how you build a fully diversified portfolio and have a full toolbox capable of completing highly worthwhile but sometimes more creative deals. I’ve developed my own advanced strategies for how to find rent to own properties but I’ve never hesitated to also learn from other students and national speakers that have helped me take my deals to the next level. I hope you do the same.
Consider partnering with the seller on very high-end homes!
Sharing a Much Larger Slice of the Rent to Own Pie
Maybe homes where you live have a very high value? There are certainly places where median home prices are north of $800,000 and rents are $3,500 a month. Even in places with a much lower median price, there are high-end neighborhoods. Most of these expensive neighborhoods have less competition from traditional buyers.
Of course, high-end homes have high-end profit potential.
I insist on being ethical with the techniques related to how to find rent to own properties. That means the seller knows that as a sandwich lease investor, I’ll be making a profit on both the lease and the sale of the home. Million-dollar houses generate big numbers. When sellers think about $3,500 a month rents and a $200,000 profit on the sale, the big numbers really stand out. Fortunately, there is plenty of profit to go around. Being agreeable to partner with the seller can make the difference between putting the big deal in place and having to walk away from it. But…
Sandwich Lease Option partnerships don’t have to be a 50/50 split.
A Bigger Pie Means Bigger Numbers
A sandwich lease option is a contract like any other contract. The profits can be shared in any proportion that you and the seller agree to. The splits involving the rent and the sale’s profit don’t even have to be the same. In a sandwich lease option, the seller normally gets the bulk of the rent anyway. In a smaller deal, the rent might go 90% to the seller and your spread is 10%. In a high-end deal, the split might shift more in your favor – maybe to an 80/20 or a 70/30 split.
The same is true about the sales profit for a lower value house. If the seller has a lot of equity in the deal, he/she might walk away with as much as 85% of the profit. But your 15% can still be $20,000. In a partnership sandwich lease option, the numbers are bigger and you have a different arrangement. Instead of a predetermined purchase price that you pay to the seller, you agree to split the profit after their mortgage is paid off and maybe split the closing costs. This can be a very lucrative arrangement for you.
An $800,000 house with a $200,000 profit shared 60% to you means a $120,000 PAYDAY!
Exploring how to find rent to own properties means it’s up to you and the seller to determine what’s fair in each situation. If you are doing all the work, they should cover all the risks. For instance, if the home is vacant, the seller should continue to cover the monthly mortgage payment, or if the tenant-buyer doesn’t pay their rent, then the seller should cover the payment. If they want part of the reward, they need to cover the risk.
Be Ethical About the Capital Gains Rule
I use this capital gains ethics rule in all of my sandwich lease option deals. If the seller is selling their primary residence, there is no capital gains tax on the first $250,000 of profit ($500,000 for a married couple). But the seller must have lived in the home for at least two of the last five years. That means when a tenant moves in, the two-year clock starts running. If the seller can’t meet the two-year rule, capital gains tax will almost certainly become due to the IRS. This can be a really big deal with high-end houses.
Because of the money involved, it can be very tempting to write a five-year sandwich lease option. But at the end of five years, the seller will not have lived in the house two of the last five years. If the seller doesn’t think about this, he/she could end up owning a large capital gains tax. Suppose you have an older couple who has lived in a house for 30 years and they have $600,000 worth of capital gains. As long as you buy the house (via a sandwich lease option), within three years, they will only owe capital gains tax on $100,000 ($600,000 – $500,000). But if the sale takes one more day over three years, they suddenly owe capital gains tax on the entire $600,000. That’s a huge difference in their tax bill that could cost them tens of thousands in taxes. Ethically, you want them to at least talk to a tax attorney or financial adviser before signing a lease option for more than three years.
There is an ethical solution to the capital gains tax rule.
It almost always goes back to how you write the sandwich lease option contract. In this case, you have to pay close attention to the contract with the buyer. You always want at least three to six months on the back end of a sandwich lease option contract. But if capital gains tax is an issue, you probably want 18 months on the back end with the buyer when you have three years with the seller. If you have three years with the seller, you give your buyer 18 months to complete the purchase. If they don’t exercise, then give the next tenant-buyer only 12 months. That still leaves you six months at the end of your contact with the seller for other plans.
How to find rent to own properties doesn’t have to involve advanced strategies but they can certainly sweeten your overall profit!
Just remember, you need to evaluate each situation on its merits, and remember that all of your strategies must be negotiated before any paperwork is signed.
Buying high-end rent to own properties using lease options begins HERE:
- 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.
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