Sandwich lease options give an unfair advantage to beginning investors for joining the playground of the rich and well connected. You’ve seen the data showing that real estate investing is the best performing investment in modern history. And with a little insider information, savvy people are using sandwich lease options as the biggest unfair advantage to get started with no or low money down!
Now is a Wild & Crazy Time for Lease Options
The Sandwich lease option is an easy-to-understand, three-step process.
- Find a seller wanting a high market price for their house.
- Place the house under a lease with an option to purchase.
- Find a well-qualified tenant-buyer.
Today’s blog is the third step in my process for finding the best-qualified tenant-buyers that I’ve been using and fine-tuning for decades.
“You Called on the Lease Option Property, Right?”
Advertising a rent-to-own home immediately has prospective buyers calling you. Finding these people is easy. Finding the best-qualified buyers takes a little upfront effort but makes everything else run smoothly right through collecting your big paycheck at the closing table.
One of the most important qualifications for the tenant-buyer is having enough money to afford the rent on a nice white-picket-fence house. First, I confirm they are calling about the lease option house. Next, I ask, “what price range did you want to keep your rent in?” Their answer quickly gives me an idea of what their income level should be so that I can qualify if they can afford to buy the house. I estimate their income by multiplying how much rent they can afford by 3. So, if they can afford $1,200 in rent, their monthly income should be at least $3,600. Multiplying by 3 (or 3.5) lets me know if their income is in a range to qualify for a mortgage on the house one day soon. You can get a lot of information out of that simple question.
But my follow-up question confirms that the prospective buyer is doing his or her math correctly. I ask, “great, so with that rental range, I assume you make between $3000 – $4000 minimum, is that right?” This question keeps me from spending too much time with someone who isn’t going to qualify for a sandwich lease option deal. There are lots of people who want these deals, so I don’t want to waste both of our time when they won’t qualify.
No one else is offering them what you are offering.
Learn Why They Want to Rent-to-Own
Now that you know they have the income to buy a home, you want to learn why they want to rent-to-own. The reason is almost always that they have credit problems. The great news is that this is the problem you are best situated to solve for them. Instead of turning them away because of credit problems (as others do), you can offer to help them.
Sandwich lease options work best for people who can fix their credit problems in one to three years. You can work with many credit problems but you can’t solve every problem. You need more details about why this person is interested in a lease to own home. You learn by asking something like, “you called on this lease option home, I assume that means you have some credit issues you might need to address, is that right? Maybe a bankruptcy or foreclosure?”
Then you let them talk. Often they will explain more than you imagined. What you might probe for are the exact dates of the bankruptcy discharge and the foreclosure sale or the date there was a short sale. These dates affect the amount of time they need to get a mortgage. If they are motivated about a sandwich lease option, they will give you the information you ask for.
I’m very excited for my students because now is the perfect time to get started with sandwich lease options.
Qualifying the Best of the Qualified Lease Option Buyers
If they have been through foreclosure, find out why? Bankruptcy – why? Are they already working to improve their credit score? Something important to learn is what has changed in their situation to make it better now? Sandwich lease options only work if the tenant-buyer is making a sincere effort to fix what has gone wrong with their finances in the past. I get the fact that bad things happen to good people. But they have to be willing and able to get back on their financial feet. Snoop a bit, usually they share the “why and how.” By asking questions you get many answers.
They will have to be able to pay the lease option fee. Once you have some empathy going with the person, you can ask more detailed questions. Work into the conversation a question like “how about your upfront payment – money to “move in” – what range did you want to keep that in?” Through the sandwich lease option spreadsheets, you will know exactly how much you want for the option fee. You’ll know if they have enough to move forward with the deal. Or you’ll know if you can negotiate a little with them. This is the time to know how to negotiate a sandwich lease option with the tenant-buyer.
Or the option fee might come as a surprise to them. They might not have any more money than the typical rental deposit. Your move is asking, “is there any chance you can borrow this from someone?” or “do you know when you might be able to save $XX?”
If they can’t come up with the money, all is not lost by a long shot. If they don’t have the money for a lease option immediately, at least they now know what is required. And they have your name and number. Let them know that you will have another house available when they are ready and you look forward to working with them in the future.
Getting to … “let me tell you about some of my properties that fit what you’re looking for…and then we can schedule an appointment to see them.”
What Else You Want to Learn About the Tenant Buyer
In a very few questions, you have almost pre-qualified a very good sandwich lease option tenant-buyer. And from the friendly conversation, you trust that the answers are accurate but you will verify these using the information from the application. But before you both spend time on the application, there is some more information you want to know upfront to be sure you are qualifying the best possible tenant-buyer.
Of course, a sandwich lease option application is not your traditional rental application. Other qualifications that you want to know about the tenant-buyer include:
Employment history. You want a tenant-buyer with stable employment. Someone with three different jobs in the past year could be a risk for paying the rent on time. Just as important, any lender they apply to for a mortgage will require a stable work history.
Rental history. Bad things do happen to good people but good people get back on their feet quickly. Even if they had bankruptcy or credit problems, paying the rent on time and not damaging someone else’s property is what good people do. The best-qualified sandwich lease option tenant-buyers will have a good rental history.
Fixable credit. The low risk that you are taking is that the person can repair their credit history whether it is a bankruptcy, credit cards, or something else. You want to know what steps they have already taken to improve their situation and what else they are willing to do. The lease option fee will be applied towards their down payment and that will be a big help. By paying the rent on time, they also improve the on-time payment part of their credit score. So they already have a few things working in their favor. Still, they may need to speak with a loan officer to fully understand exactly what they need to do to qualify for a mortgage. They might also need to work with a credit repair company.
The best-qualified tenant-buyers take action to complete the sandwich lease option.
You can’t get started with highly profitable sandwich lease options yesterday, but you can certainly Get Started Right Now!
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- You’re Wealth Building Arsenal.
- Cooperative Lease Options.
- Add Personalized Coaching.
- 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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