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 What's a Sandwich Lease Option (in simple terms, please)?

Now - what a sandwich lease option ISN'T

There's a lot of confusion revolving lease options, rent to own and seller financing. While they are all related, each type of agreement has its own special place in the real estate investor toolkit. Keep in mind as you consider this strategy that there is always three individuals involved -- The homeowner, (you, as an investor sandwiched here), and then the final buyer (who typically is/was leasing the property).

A sandwich lease option is not a rent-to-own, or a lease to own. When someone rents to own, that's exactly what they are doing. There isn't an option to buy included, they simply hope to buy the house someday. And hope is a thin string.

It's not a simple option, either. Although you will have an option to purchase wrapped up in it -- separately.

Now we're getting close -- a sandwich lease option is when you have an option to purchase real estate along with two separate leases;

  1. One from the homeowner to the option holder, permitting the lessee to sub-lease the house.
  2. Another from the option holder (and lessee above) to a new tenant.
Knowing when to mustard up a sandwich lease option and when not to use one is key to your profits.

Is your goal to make a one-off fee (a regular option) or to earn monthly paychecks plus an option fee?

There's a way to make money with real estate and never outright own any property with options, lease options and sandwich lease options. Each method is similar, yet affects your deals and wallet very differently.

If you are familiar with wholesaling real estate, you will probably recognize the similarities. But when you use options, you can substantially increase your income. Now add in the sandwich lease option method and you're really on to something profitable. 

The Value of a Sandwich Lease Option to the Seller

It's a good idea when the Seller of the property owes very little, or the house is free and clear of all liens and mortgages. 

  • The Seller will get a good price for their home, 
  • Be able to move right away,
  • And receive monthly payments while someone else is taking care of the property.
  • As mentioned below, there are definite tax benefits, too.

You are probably thinking that that sounds just like he's renting out the house. And yes, it appears that way, but sooner or later the seller will want to be cashed out and move on from this property. In the meantime he's not a landlord, but has all the tax benefits of a landlord.

Often it is not to the seller's advantage to have the house paid off right away.

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