I call the sandwich lease option the real estate investor’s trifecta because it has 3-PayDays. All three paydays are without risk and require little or none of your money in the deal. And… when you closely examine how sandwich lease options work, there are many more benefits for the investor that you won’t find with any other real estate investing strategy.
Along with 3-PayDays, more investor benefits include 1. Low start-up costs with fast growth potential, 2. No bank financing, 3. Low/No repair and maintenance costs!
3 More Benefits Beyond the Sandwich Lease Option 3-PayDays
If you are new to real estate investing or looking for a new strategy, this is where your enthusiasm begins! I’ll get to the 3-Paydays but let’s begin at the beginning with how easy it is to get started and why sandwich lease options are the hands-down-winner over other investing strategies.
Low start-up costs with fast growth potential. The only significant cost is the option fee that you pay to the seller. It’s nowhere near the full purchase cost and not even near the down payment cost. All you are paying is a small option fee for the exclusive right to complete the purchase in the next 12, 18, or 24 months. That cost might be a few hundred dollars or even a thousand dollars. But… it gets much better because the course materials show you the technique that gets your tenant-buyer to pay this small upfront cost for you – and put instant money in your pocket on the very first day.
No bank financing. It doesn’t just mean that bank financing isn’t required. It means that NO FINANCING IS REQUIRED. No hard money loans, no family loans, no secondary market loans, no down payments – it means no financing is required. You’re never going to own the home, so no financing is required. The only money that you need for the entire deal is that small option fee that you’re going to get back immediately!
Low/no repair and maintenance costs. What you will learn is that sandwich lease options are the easiest homes to sell to tenant-buyers because these are cute, white-picket-fenced homes with a nice backyard for the kids. These are houses that are already in good shape – no repairs are needed for the tenant-buyer to move in on day 1. Better yet, the tenant-buyer is going to be responsible for both future repairs and maintenance. It’s all part of the deal. The tenant-buyer is going to become the homeowner. A well-written sandwich lease option contract makes the tenant-buyer a responsible homeowner from the very start by making them responsible for the maintenance and repairs. Not only do you love this benefit, but so does the seller that isn’t responsible for the work either. One more benefit is that doing the maintenance and repairs, encourages the tenant-buyer to feel like the homeowner and more motivated to complete the final purchase.
Business grow potential is phenomenal when there is no/low cost to get started, financing is not required, and your cost per deal is zero!
How Sandwich Lease Options Stack Up Against Other Strategies
Now, compare those costs and responsibilities to other traditional real estate investment strategies like being a landlord with rentals or rehabbing to flip houses. The landlord has all the costs and responsibilities that sandwich lease options avoid. Landlord start-up costs begin with a minimum down payment of 20%, which is $55,000 on a $275,000 rental purchase. The landlord will have to finance the remainder of the purchase. That means qualifying for difficult loans and business growth potential is extremely limited because banks aren’t going to loan on more than one or two rentals. Of course, the landlord is responsible for all the repairs and maintenance. A $275,000 rental house could easily need $20,000 in repairs before the first renter even moves in. If all goes well for the landlord, future maintenance and repairs will be covered by the monthly rent – but of course, those costs cut into the landlord’s profit margin.
Being the landlord of a rental has all the costs and risks that you avoid with a sandwich lease option!
Rehab and flip investors have some different challenges along with most of the costs and risks associated with being a landlord. An important downside is that a rehabber will probably only make a 20% profit after all of the hard work is finished. That $275,000 house might turn a $55,000 profit after everything is said and done. That $55,000 is darn close to the same profit you can expect with a sandwich lease option that has 3-PayDays. But… the rehabber has to find a distressed sale that is at least 30% below market value – those are very difficult to find compared to white-picket-fence houses that are everywhere and what sandwich lease option investors are looking for. And the rehabber must purchase the house outright, which has all of the same down payment and loan qualification problems that the landlord has. One responsibility the landlord keeps but not the rehabber is future responsibility for maintenance and repairs. The rehabber sells the property and moves on to the next house – one property at a time. There isn’t much business growth opportunity when you have all your money tied up in one property at a time. On the other hand, a sandwich lease investor has no money tied up and is free to have 5, 10, or 15 deals consistently delivering 3-Paydays on every deal.
The rehabber might make slightly more on a single deal ($55,000), but a sandwich lease option investor earning 3-PayDays with 7 deals in work at the same time (each worth $49,850) is going to earn $348,950 with a lot less risk, cost, and work!
Your Sandwich Lease Option 3-PayDays Explained
As an investor, the main components of the deal involve three separate income streams or paydays. The first step of the process is for the investor to locate a seller with a suitable house and assume control of the property through a lease with an option to purchase at a future date. Sandwich lease options are about controlling properties without owning the properties. Investors gain control through a purchase option but do NOT have ownership responsibilities or costs.
As a sandwich lease option investor, you are NOT putting down earnest money, a down payment, or taking out a loan!
You sign a contract with the seller for the exclusive option to buy the house in the future. The option fee might cost $1,000, when done correctly, to purchase the house for $265,000. The contract can also have a clause saying the option fee is only due after you find a suitable tenant-buyer (making it no cost to you). You’ll have a list of eager tenant-buyers ready to go. In less than a week, a tenant-buyer will pay an option fee to you of 3% of the $295,000 purchase price that you are selling it to them for. The 3% of $295,000 comes to $8,850. This is your first payday.
When you subtract out the $1,000 option fee you owe the seller from the $8,850 that you collect from the tenant-buyer, your FIRST PAYDAY IS $7,850!
Another part of the sandwich lease option contract is that you will pay the seller $1,500 rent each month so that they can cover their mortgage and still pocket money each month. And… you are going to collect $2,500 rent from the tenant-buyer each month. This is less than 1% of the purchase price which is a common way to determine a fair rent. The $1,000 difference in the two rents each month is your second payday.
If tenant-buyer rents for 1 year before completing the purchase, your SECOND PAYDAY TOTALS $12,000!
Your third payday is the difference between the purchase price that you agree to pay the seller and what the tenant-buyer will pay you. In this case, it is $295,000 – $265,000.
$295,000 – $265,000 gives you a THIRD PAYDAY OF $30,000!
Now, add the 3-PayDays together.
Payday #1 $7,850
Payday #2 $12,000
Payday #3 $30,000
Granted, that is a little less than the rehab and flip strategy where investors can reasonably collect $55,000 from a single deal. But without money or risk, you can easily grow your business by putting 7 sandwich lease option deals in place each year with a minimum amount of work. Even before you start collecting the big PayDay #3, you’ll immediately be collecting Payday #1 on each deal, and have 7 steady monthly incomes from PayDay #2.
With 7 sandwich lease option deals each year, YOUR TOTAL OF ALL THE PAYDAYS CAN EASILY BE $348,950!!!
I don’t always use sandwich lease options. At other times, I use seller financing to get the deed and at other times I use cooperative lease options. Often, I work with Realtors because they have the pulse of the current real estate market. But the sandwich lease option is at the heart of my investing strategy because it is so simple, low risk, and requires little or no cash.
There will be three kinds of money – money now, money for months to come, and money in the end!!!
- Your Wealth Building Arsenal.
- Advanced strategies for Buying and Selling with Lease Options.
- Investing In Real Estate with Lease Options.
- Cooperative Lease Options when the time is right.
- Expand to Get the Deed “Subject To.”
- Add Personalized Coaching.
- 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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