One part of sandwich lease option investing that doesn’t get much attention is managing the tenants and the property. A big part of the reason this doesn’t get much attention is because this investment strategy is mostly passive income. Meaning once you have the deal in place, there isn’t much ongoing work to generate the continuing income.
However, you are the professional in the middle of sandwich deals. You still have a responsibility to both the seller and the buyer. Fortunately, managing the seller is minimal to non-existent. As long as the seller is receiving his/her monthly check and the house isn’t being seriously harmed, almost all sellers happily sit back collecting a monthly rent check knowing they are likely to collect a big check when the house sells in a year or two.
Tenants Have Responsibility in Sandwich Lease Options
The little bit of management time that you do put in mostly involves the tenant/buyers. But keep in mind this is NOT about cleaning out rain gutters and fixing a broken water heater. The properly written sandwich lease option makes the tenant responsible for all major and minor maintenance as the future owner of the home.
In the real world, tenant/buyers can’t always make immediate and necessary repairs. Because I live in Michigan much of my investing is here also. When a furnace goes out during a Michigan winter, it’s crucial to get that fixed. Heat is necessary. When a tenant can’t make this happen, I might need to step in with a helping hand. But one of the big benefits of sandwich lease options is that my involvement and expenses are minimal. I can have a HVAC technician out to the house with a short phone call. As an investment professional, you have options to manage the cost of the repair. One option is the tenant pays as much as they can on the spot with the balance being charged to your account or the entire cost is charged to you but the tenant pays the bill with his/her next paycheck. However you work out the details, any amount that remains on your account is ultimately added to the sales price of the home paid by the tenant/buyer – as long as you write the original paperwork correctly.
Something I’m very careful about when it comes to tenant/buyers is not giving them my home address. All payments and correspondence is mailed to my office or a P.O. Box. The phone number I give them is only for a phone dedicated to my business. It doesn’t happen often but in case a deal goes sour and you have to evict the tenant, you don’t want a disgruntled, grudge-bearing tenant showing up on your doorstep. But you have a responsibility to keep open lines of communication.
Transitioning Between Seller and Tenant Occupying the Home
You are the meat in the middle of a sandwich lease option. One of your last steps putting the deal together is moving the seller out and the tenant/buyer in. Always have complete documentation of everything regarding a tenant moving in. Probably your most important thing will be to have a videotaped walk-through or check-in with the tenant. It’s really good when you show them on tape verbally acknowledging the condition of everything, whether good or bad. Hopefully not too much bad – but maybe they’ll point out something that you somehow overlooked. If so, fix it immediately.
Technically these are still tenants until they close on the purchase. It’s still important to keep the place habitable and treat them like a tenant. If you treat them like an owner, a judge might also treat them like an owner which could nullify the option. You do have the special maintenance and repair clause in the paperwork but when the tenant/buyer is first moving in:
- Always change the locks from the previous tenant – if you don’t change them and someone still has a key, you could open yourself to serious liability.
- Clean the carpets.
- Repair any paint problems.
- Make it habitable.
When you properly screen your tenant/buyers, you shouldn’t have much trouble once they have moved in. Still, this is a transition from them being tenants to becoming homeowners. During the first couple of months some may still treat you like a previous landlord. They give you sob stories about not having the rent. Most of us can’t afford to carry another family. My strong philosophy about this is, “If the tenant doesn’t pay their rent – you are paying it for them.”
Using the sandwich lease option, you have the best of all real estate investment strategies. As a temporary landlord, you receive positive monthly cash by collecting rent and you make the big flip profit when the buyer completes the purchase. You control the property but don’t own it. It all comes with very little hands on management or money out of your pocket.
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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