Real estate investing is all about risks and rewards. You don’t need to be a rocket scientist to understand that the goal is minimizing risk while maximizing rewards. Most investors want to own as many properties as possible. A long time ago I also believed owning as many properties as possible was the best answer. Until I didn’t think that way anymore…
It took a leap of faith but one day I took the time to consider the pros and cons of owning multiple properties. That’s when I figured out the number of properties I want to own is a big Ø – even as a highly successful real estate investor. What I discovered is that I want to control as many properties as possible without the hassles and financial commitment of ownership – and you should too!
Owning multiple properties delivers a rewarding income stream but lease options have a much better risk to reward balance.
Owning a House Costs Hundreds of Thousands of Dollars
Buying properties costing hundreds of thousands of dollars each is a huge risk! Having an option to purchase is very low risk – that should be the mantra of every investor when weighing the pros and cons of owning multiple properties.
The magic in lease options is the word “OPTION.” Long after you sign the paperwork, you still have the OPTION to back out of the deal if it doesn’t meet your financial goals.
What I’m talking about involves the investor in a sandwich lease option. The tenant-buyer in a lease option is only going to own one house. They own the one home that they will live in and raise a family in. It’s good to own your family home. It’s NOT good to own investment houses!
It’s a high risk for investors to own multiple properties. That’s how landlords burn out. A well-established landlord might own 6 rental properties with a book value of more than a million dollars. She has all the hassles of maintenance and vacancies along with keeping detailed records on each house for years. And for that, her income potential is limited. The amount of rent she collects each month is never going to change very much. Once a year she might increase the rent on all 6 houses by $25. That means her annual pay increase is limited to $150. Lots of risk with very little reward.
So, to earn more money, she decides to buy more rental houses. Her existing properties can be leveraged (borrowed against) to free up liquid cash but that means putting the properties she already owns at risk by taking on debt that must be repaid. To understand the pros and cons of owning multiple properties, let’s assume our landlord has $15,000 in liquid cash to invest. The same amount that a beginning investor might start with.
For both an experienced landlord and beginning investors that $15,000 is enough to qualify for a mortgage to own a $150,000 rental house. The experienced landlord might be able to stretch that into 2 properties based on previous performance. But neither is likely to take ownership of more than 2 houses. Those 2 additional rentals will probably bring in another $2,000 of revenue each month. But very little of that is profit because the landlord must first pay the mortgage each month. Tons of risk with very little reward. If she leverages her other rentals to buy even more houses, what she is really doing is exposing all of the properties she owns to even more financial risk. What you get by owning more properties is lots of risk with little reward.
Value appreciation is the top reason that investors decide to purchase multiple properties. But that’s “book value.” You can use it to help finance more properties but it’s not liquid cash. You need liquid cash to make your loan payments and pay operating expenses. In my books cash is king.
By looking closely at the pros and cons of owning multiple properties, we quickly see that owning multiple properties is mainly all cons with almost no pros. Believe me, I could write a book of all the cons that come with owning multiple properties as an investor.
The magic happens when you understand the wealth building capability of sandwich lease options.
Big Magic Happens With Sandwich Lease OPTIONS
Everything from the purchase price to closing costs are negotiable with lease options. When anything is negotiable, you have options. For investors, sandwich lease options are the best answer because you are neither the owner nor the buyer. All you are doing is exercising the options that you decide to exercise.
If “greed is good,” then Sandwich Lease Options are Sexy!
Again, there is no contest determining the pros and cons of owning multiple properties versus sandwich lease options. You now know the many cons of owning multiple properties. It doesn’t even begin to compare to all the pros that come with a WIN-WIN-WIN sandwich lease strategy.
What investors find sexy about sandwich lease options are:
Low or no-cost investment.
Low or no risk.
Control the property for very little cash.
Helping buyers and sellers find solutions to their problems.
Easy to understand and execute.
Top dollar option payments in today’s tight market.
Three paydays – option fee, monthly rent, final sale.
Strong demand from prospective buyers.
Plenty of sellers when you know where to look.
Maintenance and repair responsibilities almost always belong to either the seller or buyer.
There are plenty of quick-closing sandwich lease option deals out there right now!
ROI is the Biggest Pro With Lease Options
Here is the big kicker when it comes to the pros and cons of owning multiple properties versus sandwich lease options. The landlord/owner bought 2 houses (at best) for the $15,000 investment. That creates a gross monthly income of $2,000 ($1,000 X 2). A sandwich lease option investor can easily take control of 12 or more houses for $15,000. That creates a gross monthly income of $12,000 ($1,000 X 12). The clear winner is the lease option investor who brings in $10,000 more each month ($12,000 – $2,000) than the rental owner.
Even as huge of an advantage as that is, it becomes much more rewarding when you consider the return on investment (R0I). Below is a simplified calculation that excludes taxes, insurance, and repairs because all things being equal, these should be in proportion for each house regardless if it is owned or leased (lease options can even be negotiated to pay a smaller portion of those costs).
The annual gross ROI for the landlord/owner is 160% (12 months X $1,000 rent X 2 houses = $24,000, $24,000 / $15,000). The gross ROI for the lease option investor is 960% (12 months X $1,000 rent X 12 houses = $ 144,000, $ 144,000 / $15,000). Controlling the property with a lease option is the clear financial winner compared to owning the property.
That’s still only the beginning of the sandwich lease option ROI because it doesn’t include the other two paydays (upfront option fee and final sale).
Sandwich lease options are low or no cost to get started. As your investment approaches zero, your ROI becomes infinite.
When it comes to the pros and cons of owning multiple properties, the lease option wins hands down.
Here is how you take control without owning anything – TODAY!
- 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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