{"id":109351,"date":"2019-04-09T05:00:17","date_gmt":"2019-04-09T11:00:17","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=109351"},"modified":"2024-02-17T15:41:36","modified_gmt":"2024-02-17T22:41:36","slug":"sandwich-lease-how-to-cash-out","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/sandwich-lease-how-to-cash-out","title":{"rendered":"How Do You Cash Out a Sandwich Lease?"},"content":{"rendered":"

Having done hundreds of lease purchase deals\u2014most of them whereby we stay in the middle or our partners stay in the middle, called a sandwich lease\u2014I’m asked weekly how the deal actually cashes out at the end.\u00a0 So, I wanted to share some thoughts and simplify the process for those who are curious.<\/p>\n

What’s a Sandwich Lease?<\/h2>\n

As a review, we use the term sandwich lease when we\u2019ve taken a home under contract via a lease purchase agreement and then placed a tenant buyer in the home via our rent-to-own program with a definitive on or before cash out date.<\/p>\n

(Note: Presently, you cannot do such a thing in Texas, but you can still do all other purchases and exits that we teach.)<\/p>\n

When the process is followed properly, your buyer has a mortgage ready date that has been established. At or before the end of the term you\u2019ve established with your seller, your buyer will be ready with their own mortgage. Now what?<\/p>\n

Buyer Process<\/h2>\n

First, it\u2019s worth revisiting how to properly bring your buyers through the process. You should be setting them up to succeed versus setting them up to fail. There are certainly educators in the industry who will tell you it\u2019s alright if a buyer doesn\u2019t close\u2014just collect another deposit from another buyer and do it again.<\/p>\n

Although his or her agreements may call for that, it doesn\u2019t sit well with our team morally or ethically. I want to put my head on the pillow at night knowing that we did the best for our buyers.<\/p>\n

As such, before a face-to-face meeting with a buyer ever takes place, the buyers need to take specific steps.<\/p>\n

We walk them through the process like this. Buyers must:<\/p>\n

    \n
  1. Watch our buyer Q&A videos before viewing the home, so they understand they are buying\u2014not just renting\u2014and how the rent-to-own program works.<\/li>\n
  2. Speak with our tenant screening company to make sure they pass all our checks.<\/li>\n
  3. Work with our mortgage specialist for a mortgage ready plan with dates that include credit repair or credit enhancement and\/or proper income reporting, as well as their income and housing ratios. This way we know they can not only afford the home but also can eventually have their own mortgage.<\/li>\n
  4. Meeting face to face (buyers\u2019 meeting) with us, so we can both see if we fit together.<\/li>\n<\/ol>\n

    \"couple<\/p>\n

    Related: <\/strong><\/em>8 Tips for a Successful Lease Option Sandwich<\/a><\/em><\/p>\n

    After all that is done, we simply make sure the mortgage ready date is inside of the term we have set with our sellers and that the buyers understand everything. Of course, we\u2019ll leave a buffer so that we have an extra six to 12 months with the seller beyond the dates with the buyer.<\/p>\n

    Hey, life happens. Challenges could come up along the way.<\/p>\n

    Now, when it\u2019s nearing the six months that remain until the close out point in the process (prior to the buyers\u2019 cashing out), you\u2019ll want to check in with them and their mortgage representative. (We use one that not only knows and understands rent to own but is also an investor himself and an expert at cashing these out.) Is everything on schedule?<\/p>\n

    Some banks are experienced and can use your original lease purchase document you signed with the buyers at the beginning. More times than not, and also to simplify the process, a new purchase and sales agreement will be drafted, reflecting the sale price, the deposit that has been paid to date, etc.<\/p>\n

    By the way, it\u2019s critical that the buyers document all of their deposits (mortgage representatives will call that \u201csourcing\u201d) in order to match what they did with what\u2019s listed on the agreements, so that they get proper credit.<\/p>\n

    Who\u2019s signing this agreement? You?<\/p>\n

    No, not in this case. Instead the purchase and sales agreement will be signed between your buyer and your seller directly.<\/p>\n

    When you installed your buyer, you placed a notice of option on record (recorded at the registry of deeds), which clouds the title so that the property cannot be sold without your sign off and corresponding option release fee. Your attorney will speak with the sellers\u2019 attorney and the bank attorney. Your attorney will then provide them a release of your notice of option, so that they can transfer with clear title.<\/p>\n

    This will only happen after you\u2019ve reviewed the settlement statement and all of the line items to make sure they\u2019re properly credited or debited to the seller or buyer.<\/p>\n

    How Do You Know if the Numbers Are Correct?<\/h2>\n

    This is where the confusion often lies. Most attorneys are used to the customary adjustments between buyer and seller.<\/p>\n

    Your rent-to-own agreement is different. For example, your buyer is responsible for taxes, so any tax adjustments that were for the term during the lease period (rent-to-own term) would go on the buyers\u2019 side of the settlement statement.<\/p>\n

    There are other things to watch for on the settlement statement, too, such as recording fees and tax stamps. In our agreements with the seller, we determine ahead of time who is paying the seller transfer tax. It’s sometimes us off of our option release fee and sometimes the seller.<\/p>\n

    After all those adjustments are made, you simply make sure your option release fee is listed on the settlement statement as a line item\/expense to the seller. The seller will get what they were promised via the lease purchase contract (if anything is due to them).<\/p>\n

    \"Businessman<\/p>\n

    Related: <\/strong><\/em>Buying? Selling? New to the Business? Why You Need a Lawyer Now<\/a><\/em><\/p>\n

    Does It Sound Like Buyers Actually Get Cashed Out With Your Deals?<\/h2>\n

    That’s because indeed they do. We cash out approximately 90 to 95 percent of our buyers. Keep in mind that life events (death, divorce, job change, and relocation to name just a few) can, will, and do happen. So, you are not likely to cash out 100 percent if you\u2019re doing 10 or more deals yearly\u2014roughly speaking.<\/p>\n

    But it\u2019s always great to hear from happy buyers!<\/p>\n

    “After a bad divorce and a foreclosure looming, I thought I would never be able to buy a home again. They made it possible and now I am living in my dream home. Easy to work with. Communicated with me throughout the process.”
    \n\u2014Michele M., Webster, Mass.<\/p>\n

    “[T]hey made our experience of getting into a home easy and hassle free. They were there to answer any questions we may have had and made the experience very positive. We got into our home within a few weeks and they went above and beyond. Truly an amazing group of people. Don, the gentleman we were working very closely with, knew we were closing on my husband’s birthday and gave us a bottle of wine to celebrate both moving into our beautiful home and his birthday. Thank you for getting us into a lovely home and going above and beyond for us!”
    \n\u2014The VanHoesen Family, Dallas, Pa.<\/p><\/blockquote>\n

    I could list many more, but the cool part of the business is helping families succeed! Enjoy it.<\/p>\n

    Look at the Solution, Not the Problem<\/h2>\n

    We had plenty of challenges in real estate in 2008, and we learned as we moved forward. If we had sat and whined and listened to others and listened to the media, we\u2019d be complaining for years to come.<\/p>\n

    Instead we actually refocused on solutions, new ideas, and moving forward. That\u2019s what brought us into the terms business\u2014buying and selling via lease purchase, owner financing, and subject to for the past seven or so years.<\/p>\n

    Since starting our terms and investment business, even though we\u2019d been working in real estate for 21 or 22 years prior, we have made mistakes. What do we do with them?<\/p>\n

    We say, \u201cHow much did that cost us? How did that happen? What can we do to fix it so it doesn\u2019t happen again?<\/p>\n

    “Do we have to change any of our forms internally, our checklists, our agreements with the attorneys? What is it that we have to do to only focus on solutions?\u201d<\/p>\n

    And as a result, our business is rock solid. We\u2019re able to share that with our partners so that they don\u2019t have to make the same mistakes.<\/p>\n

    I\u2019m not saying they\u2019re never going to make one. But if and when they do, they have the answer at their fingertips.<\/p>\n

    Finding the Right Attorney<\/h2>\n

    Of course, having the right attorney on your side does wonders. They will be handling buyer signings, seller signings, and so much more. They are worth every dollar.<\/p>\n

    We charge our buyers a $595 transaction processing fee at the buyer meeting stage when they sign a buyer letter of intent. We hand off $450 of that to our attorney, and all buyers sit with our attorney to sign\u2014even though signing a lease purchase does not require that.<\/p>\n

    There are many reasons for doing so:<\/p>\n

    1. We want the buyers to feel like it\u2019s a closing, and it\u2019s a big deal and a big first step.
    \n2. They go through the documents with the attorney and they are notarized, so if ever there are questions in the future, you have an attorney as your witness. Can there be a better one?
    \n3. This makes the process much more professional for you, your buyers, and your business in general.<\/p>\n

    Do not let any forms, agreements, or uncertainty slow you down. Get the right education, and surround yourself with the right team.<\/p>\n

    Now, go get those deals done!<\/p>\n

    \"\"<\/p>\n

    Do you have any additional questions about sandwich leases? Or about anything else?\u00a0<\/em><\/p>\n

    Fire away in the comments below.\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Having done hundreds of lease purchase deals\u2014most of them whereby we stay in the middle or our partners stay in the middle, called a sandwich lease\u2014I’m asked weekly how the deal actually cashes out at the end.\u00a0 So, I wanted to share some thoughts and simplify the process for those who are curious.<\/p>\n","protected":false},"author":443067,"featured_media":108818,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7404],"tags":[],"class_list":["post-109351","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-refinancing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/443067"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=109351"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/109351\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/108818"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=109351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=109351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=109351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}