You certainly have responsibilities to your tenant-buyers. But tenant-buyers also assume responsibilities once they sign the option to purchase agreement. Along with their right and privilege to buy the house, comes their responsibility to follow through on their sandwich lease option responsibilities.
Lease Option Fees are NOT REFUNDABLE – even though some people will try to get them back. They might make up stories to get their option fees back.
Lease Option Fees are Nonrefundable
This is probably the darker side of sandwich lease options but a very few tenant-buyers do change their minds about completing the purchase. Although I love being a professional in the sandwich lease option business, every type of business encounters an occasional difficult client.
Fortunately in this business, difficult clients tend to be rare. Remember, you are helping them fulfill a lifetime dream of becoming a homeowner when no one else wants to give them a decent chance at it. Almost all of your clients will be very happy with the opportunity for ownership and will eagerly fulfill their responsibilities. But when a problem comes up…
Honest and open communication solves most problems.
The signed paperwork is legally binding but open communication avoids and resolves misunderstandings. I make an extra effort to keep communication open with both the seller and tenant-buyer in all of my sandwich lease option deals. Still, I find it especially important to keep communication flowing with the tenant-buyer. Their right and privilege to become a homeowner require that they qualify for a loan even though they have a damaged credit rating. I consistently communicate to the tenant-buyer that they have a responsibility to work toward this (and I give them tools to do it).
The other important communication that needs to happen is a clear understanding of the rights and responsibilities that the option fee purchases for the tenant-buyer. (Yes, they are buying responsibilities.) The time to begin this is before the paperwork is signed. An important step is having the tenant-buyer explain to you how they understand key clauses of the agreement and have them initial those clauses, along with signing the contract.
A sandwich lease option also allows the tenant-buyer to walk away from the deal – by forfeiting the option fee.
The Tenant-Buyers Right to Walk Away – At a Cost
Both you and the seller have given the tenant-buyer the exclusive right to purchase the house under the agreed-to terms. But that exclusive right comes at the price of the option fee.
There are reasons for a tenant-buyer to walk away. One of the benefits of a sandwich lease option is for the tenant-buyer to “test drive” the house and neighborhood. Becoming a homeowner means they will live in the house for many years and probably send their kids to the local schools. They want to make sure the house and neighborhood are a good fit and have the right to buy the house once they know it fits their dream and needs. But maybe it isn’t a good fit. Maybe the couple divorces or they don’t get along with the neighbors. Maybe they don’t put in the effort to clean up their credit rating. There are a few reasons that can make the tenant-buyer change their mind.
A (very) few tenant-buyers will ask for the option fee back if they change their mind. Don’t refund the option fee if you have not done something wrong or there is not an unforeseen problem that makes the house uninhabitable. You have worked for the option fee. You and the seller have given up your rights to sell or lease the house to anyone else for a long period of time. You have created all of the sandwich lease option paperwork and helped the others understand the benefits (and responsibilities) of the process. You’ve managed the process. You do not have to return the option fee when you have completed your responsibilities.
The option fee pays for the right and privilege to purchase a home. Whether or not the tenant-buyer meets the terms of the option is up to them.
Maintenance Responsibilities for Sandwich Lease Options
Maintenance is another place to be sure you have open communication with the seller and tenant-buyer. It is also an area that you must understand your own responsibilities because you are the meat in the middle of a sandwich lease option.
A big benefit for you and the seller in a sandwich lease option is little or no maintenance – the tenant does it all!
From the beginning, make it clear to the tenant-buyer that they are responsible for all maintenance – major and minor. But at the same time, you need to be sure the house is kept in good repair for the sake of both you and the seller. The sandwich lease option course explains several very good techniques for keeping the house in good repair and holding the tenant-buyer responsible.
Most of my sandwich lease option deals are in Michigan. We have brutally cold winters here. There has been an occasion when a furnace broke during the coldest part of the winter and the tenant-buyer didn’t have the money to make the repair. You could be mean and tell the tenant-buyer to act like the homeowner they want to become by freezing and suffering until they can afford the repair. But you’re not mean and you do want to keep good relationships with the tenant-buyer.
There is a solution that keeps a good relationship and still holds the tenant-buyer responsible for the maintenance of the house. The first step is to talk to the tenant-buyer and be sure they have thoroughly considered all of their options. You may even be able to suggest a few options they have not yet considered.
If the tenant-buyer cannot come up with a solution, you and/or the seller may want to arrange to pay for the repair. I use the broken furnace during a cold Michigan winter example because this is a time when I would go ahead and make the repair.
But… I add the cost of the repair to the purchase price that the tenant-buyer will pay at closing.
I realize that sounds like a brutal example but when you think about it for a moment, it is a Win-Win. The tenant-buyer doesn’t have to suffer and they still get to buy the house. Still, you hold them responsible for the maintenance and aren’t stuck with the cost. Communication is still a powerful tool. Before you send out the maintenance company, you want to explain that you will help them out but the cost will be added to the purchase price. You never know, the tenant-buyer might suddenly find a way to make the repair themself so that you never have to pay for it.
The power of a good sandwich lease option process is that it gives you WIN-WIN-WIN solutions to even the most difficult situations!
What else do you need to learn about the sandwich lease option process? It’s all in the courses below:
- 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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