The Sandwich Lease Option Basics
You find Landlords and Private Sellers and Mortgagee Sale (Foreclosure) Owners who are in trouble with some area of finance or life's circumstances (ANXIOUS SELLERS-OWNERS).
You solve their problem by offering to:
- Lease their property for 4-7 years
- Set Lease Payment at TODAY's MARKET RENT
- Option to Purchase for TODAY's FMV (Fair Market Value)
- GUARANTEE today's market Rent for 4-7 years plus all minor maintenance up to $200
- No property manager fees of 7% of market rent collected (no guaranteed rent paid by property manager)
Now, you market for and negotiate for a Tenant-Buyer to Lease with an option to purchase the home that YOU are a MASTER TENANT OF.
You Lease Option, then SUB-Lease and SUB-option.
So the Tenant will agree to:
- Pay a lease Payment HIGHER than you will pay to your CLIENT-LANDLORD-OWNER (positive cash flow for you! Yeah!)
Typical:
- 75% of Market Rent paid to Owner-Landlord GUARANTEED, then market rent plus additional option consideration paid to INVESTOR-MASTER TENANT.
- Pay a MOVE IN OPTION CONSIDERATION PAYMENT that is MUCH MORE than the option consideration payment that you paid the OWNER-LANDLORD (positive chunk cash PROFIT NOW).
- NO or SMALL OPTION CONSIDERATION paid to owner
- 3% - 5% of FMV paid to MASTER TENANT-INVESTOR from Tenant BuyerPay a LOW exercise price paid by MASTER TENANT-INVESTOR to the Owner
- And pay a High exercise price from Tenant-Buyer to the MASTER TENANT-INVESTOR
Example:
- FMV $100,000 today
- Lease for 7 years
- Sublease for 12 months
- Option price to Owner: $100,000 over the next 7 years, regardless of appreciation
Option Price to Tenant Buyer:
- $110,000 for 12 months (This is called the BACK END). The major profit for the Sandwich Lease Option Investor.
After 12 months, if option is not exercised, then MORE option consideration is paid, higher rent, more option payments to build equity.
- Good for Tenant-Buyer
- Good for the MASTER-TENANT (Investor)
- Good for the Owner-Landlord
