The devil is in the details but sandwich lease options can be made easier. In this case, the details are in the lease option forms and contracts. This is an especially important step because this is where everything becomes legally binding. There are two sets of paperwork. One between you and the seller and another between you and the tenant-buyer. The good news is that the paperwork you have with the tenant-buyer is very similar to what you have with the seller.
You have the tenant-buyer sign a similar contract to the one you signed with the seller – only for a lot more money.
The 3 Main Lease Option Forms and Contracts
To make a simple lease option work, you only need three main contracts. I’ve seen people roll them into one or two contracts but that’s risky. For the sandwich lease option, you need a total of six separate contracts. Three between you and the seller and another three between you and the tenant/buyer.
The three main contracts are:
The Option Agreement – giving you control of the property without ownership.
The Rental Agreement – specifies how long you will rent the house and how much you will pay each month for the rental. The rental payment will always go first to the seller’s mortgage company if any mortgage is due on the home, then to the seller if any rent is remaining.
The Sales Contract – sets the terms of the final sale.
You need the same three main contracts on the tenant-buyer side of the transaction. It should be obvious that separate contracts are needed because the terms and dollar amounts will be different and involve different people. But it couldn’t get much simpler because, like using the templates, it’s almost all cut and paste. But you do change the names and dollar amounts on the tenant-buyer contracts.
It’s the difference in these terms and dollar amounts that create your profit.
Expert Tips for Lease Option Forms and Contracts
The templates can be used in all states, but a local attorney should always check your lease option forms and contracts because each state has its own unique laws. Still, I suggest you start with the contracts that I offer. You may have a top-notch real estate attorney but not likely one that specializes in lease options. Real estate attorneys cover a lot of real estate (pun intended) probably including both residential and commercial. While he or she will make sure your local laws and regulations are properly covered, he or she is also likely to learn some clauses and techniques that I’ve developed over decades of experience specific to sandwich lease option forms and contracts.
What you want to be sure is included in the sandwich lease option is:
- Make sure the property is fully described. Include the street address along with the legal description. Describe the house for the number of bedrooms, bathrooms, and any outbuildings such as detached garages and sheds. If there are multiple lots or acreage involved, be sure to specifically include what the sale price includes.
- Be sure to include the full legal name of the seller and tenant-buyers. If there are multiple sellers and/or tenant-buyers with a right to purchase, include all full legal names. Include the landlord’s current address, phone number, and other contact information.
- Clearly state the cost of the house and the responsibility for any and all closing costs that both the tenant-buyer and seller must pay. Optionally (not recommended) you can record how the future sales price will be agreed upon.
- Lease option forms and contracts need to clearly state the date the option expires. After that date, the landlord has the right to sell to another buyer and the tenant could be required to move out. The length of the lease option typically lasts between one and three years but is fully negotiable between the landlord and tenant-buyer.
- Lease option forms and contracts are all based on what the tenant-buyer and landlord agree on. However, there is typically a security fee and an option fee involved. The security fee belongs in the lease paperwork as is standard in a lease agreement. The option fee belongs in the purchase option agreement and should clearly state that it is not refundable if the tenant fails to execute the purchase.
- While the lease option forms and contracts need to be kept separate from the lease agreement, this paperwork must clearly include what happens if the tenant decides not to buy. In almost all cases, the option fee is forfeited (this is separate from the security fee). Other things that need to be addressed include any maintenance, investments, or improvement costs the tenant makes to the property.
- One of the big advantages of the lease option forms and contracts is the landlord often passes on responsibility to the tenant for most maintenance and repairs. Typically, if a furnace burns out, a roof begins failing, or other major repairs are needed the landlord is still financially responsible. However, replacing faucets, tightening loose hardware, unplugging toilets, keeping the yard in good shape, and other small maintenance and repairs become the responsibility of the tenant. The degree of responsibility is fully negotiable and should be accurately recorded in the lease option forms and contracts.
TIP: A good contract clause is making the start of the seller’s lease option contract subject to you finding a tenant-buyer.
Getting It Right the First Time and Every Time
I use a checklist so that I don’t forget any step during the process and can be confident that all items are completed. This is most important when you are new or when you have many properties going at one time. When you are experienced, you will know what needs to be done and likely not forget much. However, when you have many properties (like I have had at many times), it becomes more difficult to keep everything straight in your head. Things will potentially slip through the cracks.
The paperwork is vital to your successful sandwich lease option deal, so don’t skip any steps, and make sure all areas of the check sheet are covered. You will add your own favorites over the years as you do lease options and learn new ideas.
I have a ton more resources to share with you!
No more procrastinating! Every detail you need to successfully start your sandwich lease option investment business is right here at your fingertips!
- 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.
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