Sandwich lease options always have a place in an investor’s toolbox. Today’s real estate market has all three parts that make this an enormously powerful strategy.
The three important parts are:
- A seller needing a creative solution.
- A knowledgeable investor capable of putting the deal together.
- A tenant-buyer to complete the purchase before the lease period expires.
You, as the investor, are the meat in the middle. Done correctly, the sandwich lease option is a WIN-WIN-WIN scenario for all three parties.
Finding the Right People for a Sandwich Lease Option
The two elements that are readily available today are the tenant-buyers who can complete the purchase sooner rather than later and you as the knowledgeable investor. Today’s market is challenging for first-time buyers needing a huge down payment and/or qualifying for a loan. The sandwich lease option can be the ideal solution for buyers finding themselves in this position.
Beginning real estate investors find the low-risk and low-cost sandwich lease option to be highly preferred over other high-cost and high-risk alternatives of owning rentals, flipping houses, other hybrid methods.
Also available and waiting for you to find them, are sellers needing a creative sales solution. These sellers always exist in all markets. It could be a landlord who already has tenants in the house but who wants to be relieved of landlord responsibilities for a few years before completing the sale. Or it could be a seller with very little equity in the house that needs to sell but can’t afford the costs of a traditional sale involving sales commissions. Or it could be a seller wanting an income from the sale or to defer taxes. There are many reasons why sellers benefit from a sandwich lease option.
It’s the sandwich lease option investor who brings together these sellers and buyers to structure deals meeting the needs of everyone.
Starting Point of a Sandwich Lease Option
As with any creative investing strategy, there are many variations to the basic sandwich lease arrangement. For the 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.
As a beginning investor, you are NOT putting down earnest money or a down payment!
Once the investor has control of the property, a tenant-buyer is brought in. The best tenant-buyer is a person likely to qualify for a mortgage before the investor’s option period expires. The investor and the tenant-buyer enter into a second lease agreement with an option to purchase. A key element of this second agreement is the tenant-buyer paying a higher option fee than the investor paid in the first agreement with the seller. This higher option fee is the investor’s first of three income streams.
Another key element of the second agreement is that the tenant-buyer’s option period is slightly shorter than the investor’s option period. This places the investor in the middle of the sandwich lease (the meat in the sandwich). The purpose of the investor’s option period being slightly longer is to assure the investor is still part of the deal when the tenant-buyer completes the purchase.
The second income stream for the investor is the monthly rent collected from the tenant-buyer during the lease period until the purchase is completed. The investor (you) structure the deal so that you are paying less in rent to the seller than the tenant-buyer is paying to you. The rental income is typically the smallest of your three income streams but is a steady and reliable income until the purchase is completed.
The seller benefits when the rental income both covers the mortgage payment and brings in positive cash flow. The tenant-buyer benefits because the option fee applies to the down payment when the purchase is completed. Also, the tenant making reliable rent payments enhances their credit score to quickly move them closer to qualifying for a mortgage to complete the purchase.
The third income stream for the sandwich lease option investor comes when the purchase closes. Typically, the investor’s purchase price and the tenant-buyer’s purchase price are established when the original agreements are signed. For the investor, this payday can be substantial (tens of thousands of dollars). The actual amount of the investor’s profit is based on the difference between the sales price negotiated with the seller and the final sales price negotiated with the buyer. Almost always, this involves the property value appreciating during the option period. Appreciated property value is another win for the buyer.
Cooperative Lease Options are Great for Beginning Investors
Another type of real estate investing option is the cooperative lease option (also known as wholesale lease options), which can deliver a payday in a few hours under the right conditions. But as full disclosure, it will probably take a day or two. This is cutting edge, but I have proven many times that it works astonishingly well. Because it is still cutting edge, you won’t find it in any other real estate textbooks.
Cooperative Lease Option – For the Fastest and Lowest Risk Paydays!
A cooperative lease option requires little or no capital from you as an investor. The key is establishing a purchase option with a seller that is ‘assignable’ to a third party. As always, the details are in the contract when it comes to creative real estate investing. The person you will assign the contract to is usually the tenant-buyer. A key difference here is that in a sandwich lease option, you collect an ‘option fee.’ With the cooperative lease option, you collect a ‘finder’s fee’ for transferring your option to another person.
When you do that, you are paid quickly and out of the deal quickly. This works for any investor but is especially attractive to beginning investors. When you can get out of the deal quickly, you don’t have any other expenses such as painting the house or making cosmetic repairs.
So, the bottom line with a cooperative lease option is that you might pay a small option fee to the seller for an option that is assignable. You immediately sell it to another person for your profit. I love sandwich lease options, but I don’t know of a faster way to make a profit than with a cooperative lease option.
It’s always about a WIN-WIN-WIN for everyone. Sandwich Lease Options and Cooperative Lease Options are both all about finding creative solutions that work for you and others.
What you need to do now is TAKE ACTION!
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- You’re Wealth Building Arsenal.
- Cooperative Lease Options.
- Add Personalized Coaching.
- 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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