If you regularly read my blogs, you’ve already learned most of the ins and outs of sandwich lease options. Good for you. Still, as with any professional business, there is always more to learn and new questions come up from time to time. Today, I’m sharing more of the details that come along as people do more and more sandwich lease option deals.
Pay attention to both sides of the equations (both sellers and buyers).
Researching Seller Financial Status
You’re not a lender or a title officer, so you don’t need to know every detail about the seller’s property. However, for your peace of mind and to strengthen your sandwich lease option deal, you do want to know important underlying finances about the property. Most or all of this can be easily obtained (what’s publicly available varies from state to state). The types of information you want to learn are:
Title search (probably after you have signed paperwork).
The latest mortgage stub to assure payments are up to date (from the seller).
Property taxes (online).
HOA fees and status (with seller’s permission).
Water bill (online in some states).
An affidavit from the seller stating there are no other liens.
Have valuable information at your fingertips.
Shortly after signing the deal with the seller, you want to create an information sheet about the property. You may not think you need to document this information if you only have one or two properties in your inventory, but as your business and inventory grow, having this information handy becomes very valuable. Think about this in terms of what you know about MLS listings. Each property is unique but the basics include:
Square footage.
The number of beds and baths.
House style.
Unique features like master suite and stainless steel appliances.
Neighborhood information.
Home warranty information (something you want the seller to offer).
The option price (don’t market it as the sales price).
Whenever you use this information in your marketing materials, always prominently include language that it is a lease to own opportunity. Also, be familiar with your local regulations so that you know what is allowable in marketing materials.
You want to refer back to this marketing information when you make a video of the home. Videos are much more powerful than still photos. Videos also help your Google ranking. There are businesses that make professional real estate videos if you don’t want to do it yourself or if you live at a different location than where the home is.
Know when the deal just isn’t going to work.
Early in your conversation with the seller, you need to understand the seller’s current financing situation. This is something a bit unique to sandwich lease options. A situation you might discover early in the conversation is that market rents won’t cover the seller’s monthly mortgage payment. Deals like these are difficult or impossible to make work as a win-win-win. For instance, the seller might have a $1,600 a month mortgage payment but market rents for the neighborhood only average $1,200 a month. This can happen when the seller is in a bad mortgage arrangement. You might be able to make this work if the seller can cover a $400 a month negative cash flow but that’s not a good situation for you or the seller. Don’t waste your time when the deal just doesn’t make sense. What you can do is suggest the seller look into refinancing the mortgage and get back to you when the deal will work. You might even have a few refinancing resources to suggest. But the bottom line is for you not to spend too much time on a deal that just won’t be good for everyone involved.
Work Both Sides of the Equation
You need both inventory (sellers) and tenant/buyers. Tenant/buyers are easier to find than sellers are but don’t make a mistake by only marketing for sellers. Don’t get one house under contract and relax. You might not immediately find a buyer for that particular house.
Keep marketing for both buyers and sellers to increase your number of successful deals!
Buyers are putting up a substantial option fee and will be taking out a 30-year mortgage. They will have some discretion about which house they want to commit their future to. It’s great when you have an inventory of 15 houses that buyers can choose from. The more buyers you have, the more likely each one will find a house in your inventory they will commit to. It’s true that you can have 100 buyers for every seller but still be sure to market to buyers as well as sellers. But do keep your marketing balanced in favor of sellers. If you have 1,000 buyers and an inventory of 10 homes, you will easily close all 10 deals. Ten sandwich lease option deals a year will earn you a very handsome profit (probably triple digits).
Create Marketing Momentum
Momentum creates word-of-mouth marketing and word-of-mouth works both to attract more sellers and buyers. However, word-of-mouth marketing doesn’t mean that you don’t need a website and other marketing materials. Even referrals need somewhere to go for more information about your business and current inventory.
It’s great if you have a small monthly marketing budget but there are free alternatives if you don’t. These include YouTube Videos, WordPress websites, Facebook Fan pages, etc. And don’t forget the power of simple bandit signs. There are many no-cost and low-cost marketing techniques in the training materials. Social media is particularly effective and you want to link online materials together for the biggest impact.
Part of word-of-mouth marketing includes asking for testimonials as soon as you have deals. Don’t only depend on word-of-mouth marketing, directly ask your sellers and buyers for references. One technique for getting multiple referrals is as soon as a seller or buyer makes a referral, press them a little more by saying, “Joe sounds like someone I can help, who else?” Leave a pregnant pause to wait for them to come up with another name or two.
When working on your marketing, don’t forget to refer back to your information sheets about each property. You’ll forget house details as you increase inventory. One word of caution: be careful with the terminology you use. Don’t imply that you are a loan originator or lender. The Dodd-Frank Act and other legislation are important to comply with. For instance, use “option fee” rather than “down payment.”
The more marketing, the more sellers and buyers that you’ll have.
Very Little Competition for Sandwich Lease Options
Other investors are chasing other methods such as flipping and land-lording. These investors mistakenly think that sandwich lease options are more complicated and require more effort than they actually do. It’s as easy as meeting with a seller in the morning, meeting with a tenant/buyer in the early afternoon, and completing the paperwork the same day. Or would you rather manage a four-month rehab project that has more risk because you can’t know what your profit will be until your capital investment is spent and the house is sold? Along with that rehab risk (or landlord), come holding costs, permit costs, and likely the cost for an accountant to keep it all straight. The other investment strategies all add up to risks, costs, and uncertainty.
Sandwich lease options are all about control without the hassles of ownership!
It’s up to you to take action NOW:
- 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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