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A beginner's guide to the sandwich lease option

If you're using a sandwich lease option correctly, you'll soon see a nice increase your passive income many times over.

There is a first time for every kind of real estate deal, and chances are that once you get it -- you'll love this strategy to control property without putting in any money of your own. The opportunity to use this method doesn't come along as often as we'd like, but when it does, it's a real estate money maker for sure.

I get excited when I close on a sandwich lease option.

(To learn the basics, first, of what a sandwich lease option is, use this link.) 

Best time to bring in the sandwich lease option

When to use a sandwich lease option -- and when not to use one.

And your choice to use a sandwich lease option is answered by asking, "Do you want to make more money at the end of the lease while increasing your monthly passive income stream?"

Generally, you are looking for a nice monthly cash flow between what you will pay the seller to cover the house payments and what you can reasonably get from a tenant who would like to buy the house. With both a regular lease option to purchase real estate and the sandwich lease option, you can expect to collect an option fee from the tenant/buyer straight away, without completing the lease term.

The main difference between your two choices is the monthly spread you can make if you choose to stay in the lease as the "middle person",  and the yearly appreciation on the property until the final close.

With a regular lease option, you simply lease the property from the owner (often and most desirable with the right to sub-lease) and sell the property for a higher price when or before your option expires.

Now with a sandwich lease option, you'll take the same steps BUT you'll stay on the lease with the owner and earn a monthly income from the higher rent you'll get from your sub-leased tenant.

Why would a tenant pay more rent?

Why wouldn't a tenant pay more for a nice home to rent, when they have an option to purchase that home in the near future? 

That means they can move in right away while saving up for their down payment. And move into the house they desire to buy and live in long term (raise their family, get into better schools, etc.).

Be in control of most any house without any money in the deal

Typically, we won't be using any of our own money with the sandwich lease option. strategy. Also, we won't be involving a bank since this will not trigger a due on sale clause or any new financing.

Generally speaking, if the seller has a lot of equity, such as little or zero debt recorded on the property, a sandwich lease option can be very profitable for you. And a benefit for the homeowner who from many reasons isn't in the best position to sell the property right away.

You'll see this mostly with homes in probate, and in situations where the seller is downsizing. Once you begin searching for deals, you'll be astounded at how many homes are free and clear.

Next steps to using a sandwich lease option -- moving forward with the deal

After obtaining a signed option to purchase from the seller, the next step is to be certain they don't have any objections to having someone live in their house. If they do, then the only way to work this deal is to market it as a straight option to purchase deal.

The only way you can sub-lease the property is with a signed agreement to lease the property with the right to sub-lease.

If the seller is moving out of the house, that shouldn't be a problem. Just make sure everything you intend to do is clear with the seller. Nobody likes unwanted surprises.

How you can control property with a sandwich lease option & make money with real estate you don't own

If the seller is OK with waiting to be cashed out of the house, and likes the idea of monthly payments that will cover the house expenses, while someone else is taking good care of their property, this is a good scenario to use a sandwich lease option. The reason is two-fold:

Mostly likely the house will appreciate over the next few years, so the sales price you negotiate has good future value. When it does finally close to the end buyer, you'll earn a fee equal to the spread between the price you originally negotiated with the seller on the signed option agreement, and the final sales price. Depending on your area, and the length of time between the two events, this could be substantial.

And, you will be able to make a monthly spread from what the payments that you agree to pay to the seller, and what you will get from the tenant. If it pencils out to be a nice monthly income for you, you'll want to stay in the deal in a "sandwich" position. 

But when there is little equity in the property, the appreciation factor is minimal. If that is the case, it is better to use a plain lease with the rights to sub-lease the property.

Ready to move on to sandwich lease option strategy? Use this link to move forward and create your best deal.

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