Sandwich Lease Option Offers A 'No Money Down' Strategy For Investors. Here's A Quick Video Explaining What Sandwich Lease Options Are...
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Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I've got a quick video on Sandwich Lease Options.
Defining Sandwich Lease Options
The sandwich lease option strategy is a creative real estate strategy that can get you cash upfront, monthly and on the backend when sold. It takes literally no money, credit, or bank loans to get started. Sounds good right?
So a typical Sandwich lease option works like this... As an investor...
- Find a motivated seller or tired landlord - check other REIClub videos for how to do this
- Negotiate a lease with option to buy the property
* rent payment to seller - below, same or above mortgage payment. made directly to mortgage company or escrow account
* sales price - below market preferably, take property as-is if no repairs or maintenance needed or rental property
* one year lease with option with 3 to 5 renewal periods - need time to get property sold so investor gets paid on backend
* seller responsible for repairs above certain amount (seller insurance), investor takes care of repairs below that
- Find a lease option tenant - usually someone who can't qualify for a loan but has cash for option fee
- Negotiate with them for better terms on your part, as the investor:
* upfront option payment, usually 2-5% of the property value, non refundable,
* monthly rent payment - above market rents, tenant buyer pays investor
* strike price - sales price of property down the road, must appraise, typically 5% to 10% higher than amount agreed with seller/landlord
* paperwork - lease and option to buy are separate docs so can evict for non-payment
* repairs - tenant responsible for repairs up to seller-responsible amount
In essence, you make a sandwich, original owner on bottom, you in the middle, and new tenant buyer on top, hence sandwich lease. The investor (you, the middleman) make money on the spread between upfront cash, monthly cash, and final sales price.
- Helping a seller in need
- You dont need to obtain financing to buy property
- Control of property without owning property
- No credit or money is needed to get started
- You don't have to get involved with the hassles of maintenance issues
- You can receive a large lump sum at the start of each transaction
- Collect above market rent from a tenant buyer - great cash flow
- Receive a large lump sum at the end of the transaction
- Vacancy periods
- Tenant/Buyer doesn't fulfill option - not that big of a con because you keep option fee
- Property get's damaged and destroyed in short period of time
- Tenant/buyer defaults on monthly payments
A sandwich lease option is just one strategy of many to acquire real estate with no money down. What's important to remember is that for real estate transactions like these you absolutely have to have strong paperwork. Meaning, you should consult with a real estate attorney to create paperwork, or modify existing ones to be more in your favor. Remember, the whole purpose of using the sandwich lease option strategy is to acquire property without actually owning it, reducing your risk, and creating multiple areas of profit.
Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you'll be automatically notified when we upload more quick video tips for you. Take care and good investing.