BiggerPockets

I'm working towards getting a lease option done here in So Cal. A lot of the people I talk with will be taking a negative cashflow duringc the lease length. Mostly those are the people who have the messed up loan products. My mentor said only 30% of options are excercised....

What I meant with what I said is that the home owner would be running negative, not me.

Example:

Home owner has a 4,000 mortgage, but willing to take 3,000 rent.

Tenant Buyer pays 3,000 rent.

Its the home owner who is taking a negative take.

Although it would be better if more than 30% of people exercised the option, its not bad...you still got the upfront option money. Them exercising the option is icing on the cake, and it depends on how you structured your deal: How much margin is there between your price to purchase the house with home owner, vs price for your tenant buyer to buy the home from you? How much rent credit is the homeowner giving you, vs how much rent credit you are giving your tenant buyer? How much option money did the homeowner want vs how much option money are you charging your tenant buyer?

What I'm talking about above is sandwich leasing.

The way you're asking the question, it sounds like you're talking about doing a lease option, as you being the home owner.

I think sandwich leasing is good.

1) You don't own the property, you don't need credit, no loans in your name.
2) Gold and Sachs said houses in CA are 35-40% overpriced. If you own the property, its at 500k now, two years later your tenant buyer decides to not exercise option @ 500k. You have to find a new tenant buyer or renegotiate the option price. The house could be worth 450k after the two years pass. So unless you find someone to pay 500k for a 450k valued home, you're down 50k.
a.) Not owning the property is an advantage to this situation IMO.
3) If you default on a property you own, bank forecloses on you. If you default on a lease contract there is no foreclosure to worry about.

Anthony,

You shared a fair amount of detail. Thanks.

In the example you talk about an owner who is in for $4,000 a month and you are renting for $3,000 a month. The negative stays with the owner.

Two things.

1. What do you do, if anything, to protect the deal from the owner defaulting on the loan. They are feeding an alligator so they might just run out of cash.

2. Are you recording your options when you 'buy'? What about when you 'sell'?

John Corey

" An appeaser is one who feeds a crocodile - hoping it will eat him last."
Winston Churchill