How much profit should you make on a rental property? There are a bunch of complicated profit calculations involving cash flow, expense sheets, return on investment, etc. But there is a much simpler way to look at this. If you don’t buy the rental house but you make money from it, every dollar that you earn is profit. That is what taking control without ownership using sandwich lease options is all about!
All money made in real estate is made by controlling property.
Maximize Profits While Minimizing Risk With Sandwich lease Options
With sandwich lease options, you will profit from rental houses without owning them. There is no reason why you should not control 20, 60, or 125 rentals with each one earning you a profit every month. Even if you only earn $300 in profit from each house, the numbers are phenomenal! Twenty houses at $300 per month means $6,000 in your pocket every month. Sixty houses = $18,000 every month in profit from rental houses without risking any of your money to buy the houses. That is the power of sandwich lease option investing.
Real estate investing is about risks and rewards.
You don’t need to be a rocket scientist to understand the goal is minimizing risk while maximizing rewards. Owning property is the most obvious way to control it, but control is possible without ownership – and control is what makes the money. All of today’s most successful real estate developers use options of some sort. But you don’t have to be a big-time developer to use sandwich lease options.
A long time ago, I also believed owning as many properties as possible was the best answer. Until I didn’t think that anymore…
I’m not asking you to take a leap of faith. I’m only asking you to consider the possibilities of how you can profit from rental houses without owning them but instead by controlling them with sandwich lease options.
The magic happens when you understand the wealth building capability of sandwich lease options.
Profit From Rental Houses By Making the Owner Happy
I ask the participants in my seminars how many would buy a house for $100,000 if they were sure they could sell it for $200,000. Every time, every hand in the room goes up. That tells me that every investor out there is looking for the same deals. The same deals that are very rare – buying deeply discounted properties.
Then I ask them if they want to buy a $200,000 house for $180,000. Almost all the hands go down. Too much risk for too little reward. So, that is what almost all the investors are doing – looking to take ownership but only if the reward is very high compared to the risk…
What if you lower the risk but keep the reward high…?
Next, I repose the question about the $200,000 house for $180,000 as a sandwich lease option. Control the house for several years while collecting several hundred dollars of rent each month AND collecting the $20,000 price difference AND a hefty upfront option fee from a tenant-buyer. Using the same house, at the higher price for the seller can easily make a sandwich lease investor $35,000 to $45,000 – at much less risk because you have an option to buy but not a requirement to buy. The seminar participant’s hands go back up…
What I discovered is that I want to control as many properties as possible without the hassles and financial commitment of ownership – and you should too!
The DownSide of Owning Multiple Properties
For most real estate investors, it’s counterintuitive that merely controlling properties is financially superior to outright ownership. From highly experienced investors to beginners, available cash for investing is typically in limited supply. Experienced investors might own 20 rental properties with a book value of several million dollars.
Those properties can be borrowed against to free up liquid cash but that means putting owned properties at risk as well as taking on debt that has to be repaid – tons of risk. To understand the downside of owning multiple properties let’s assume the experienced investor has $15,000 in liquid cash to invest. The same amount that a beginning investor might start with.
For both experienced and beginning investors, that $15,000 is enough to qualify for a mortgage to own a $150,000 rental house. The experienced investor might be able to stretch that into 2 properties based on historic performance.
Neither investor is likely to take ownership of more than 2 houses.
The UpSide of Controlling More Properties Using Sandwich Lease Options
When you understand sandwich lease options, it’s clear that you can control and profit from more properties than if you own them as rentals. Rather than a $15,000 down payment to own a single rental, that cash is better applied as option fees to take control of multiple houses with options. As a knowledgeable investor, I’d consider a $2,000 option fee on a $150,000 house to be on the high side. But we’ll be conservative here and go with that number. That $15,000 gives you control of 7 houses rather than ownership of 1 house.
Your monthly profit from rental houses is going to be about the same whether you own or lease those houses. To keep the example easy, assume rent income each month is $1,500 (1% of the purchase value). From that income, you can expect to pay about $675 per month towards the mortgage if you buy or the same amount if you lease. Both ways it leaves a monthly profit of $825.
7 Sandwich lease options, each earning $825 means a total monthly profit from rental houses of $5,775!
ROI is the Big UpSide With Sandwich Lease Options
Here is the big kicker when it comes to the pros and cons of owning multiple properties versus sandwich lease options. The owner bought 2 houses (at most) for the $15,000 investment. That creates a gross monthly profit of $1,650 ($825 X 2). The sandwich lease option investor took control of 7 houses. That creates a gross profit of $5,775 ($825 X 7). The clear winner is the lease option investor who earns $4,125 more each month ($5,775 – $1,650) than the rental owner.
Sandwich lease options make much more profit from rental houses but have much Less Risk!!
Oh yeah, there are those complicated profit calculations. The ultra-low risk for big reward becomes much more compelling when you consider the return on investment ratio (R0I). Below is a simplified calculation that excludes taxes, insurance, and repairs (owner expenses) but all other things being equal, the numbers are in proportion for each house, regardless of whether it is owned or leased.
The annual gross ROI for the owner is 132% (12 months X $825 rent profit X 2 houses = $19,800, $19,800 / $15,000). The gross ROI for the lease option investor is 462% (12 months X $825 rent X 7 houses = $69,300, $69,300 / $15,000). Controlling the property with a sandwich lease option is the clear financial winner over owning the property.
The numbers say the sandwich lease investor earns 330% more – by taking less risk!
Even More Income From Sandwich Lease Options
Let’s keep in mind that owners can gain more appreciated value than sandwich option investors. First, it’s going to take many years before the appreciated value catches up to that huge difference in ROI. Furthermore, the option investor will have pulled in even more profits over a couple of short years and then moved on to repeat the deal several times long before the appreciation (which isn’t liquid) catches up.
This is where the sandwich lease option becomes far superior. The sandwich lease investor puts a tenant-buyer in place who pays the rent until the purchase is completed. That tenant-buyer also pays you the upfront purchase option fee that immediately returns your original investment. When your investment becomes zero, your ROI becomes infinite. You even profit immediately by collecting a higher option fee than you pay. In our example, the rent profit was a wash between the owner and the lease option investor except that the lease option investor was collecting rent on 7 houses instead of 2.
The lease option investor collects another big payday when the tenant-buyer completes the purchase. For our example, we’ll assume the lease option investor sells to the tenant-buyer for $20,000 more than they have an option to pay the original owner. The 7 sandwich lease options result in a $15,000 initial investment (that is returned to the investor immediately) + a gross rent profit that is far superior to the house owner + a sales profit that exceeds the owner’s appreciated value. All without the responsibilities and risks of ownership.
When it comes to making a profit from rental houses, the sandwich lease option wins hands down.
Act Now to learn all the ways to profit with lease options!!
- Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Cooperative Lease Options.
- Working with Realtors.
- Investing In Real Estate with Lease Options.
- Personalized Coaching.
- Get the Deed “Subject To.”
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.