Why assign a lease in a LO Sandwich?

7 Replies

From what ive always understood, when doing a lease option sandwich, you sign a lease option agreement with the seller, and then you find a tenant buyer and have them sign a separate rental agreement and a separate option agreement.

I spoke to an attorney last month and he was saying something about assigning the rental agreement that i have with the seller, over to the tenant buyer. At the time i really didn't think we were on the same page, but while readying wendy pattons book on sandwiches, she said she includes a clause in her rental agreement which says "Tenant will be assigning this agreement to another party, but is still responsible to the owner per this agreement."

After thinking about it for a little bit, it makes sense to assign the rental agreement IF i was also assigning my option to buy, but its still unclear.

I was hoping someone could help me figure this out, or even better, point me to a good source of information that goes over the tiny little details of LO sandwich paperwork and how settlement works with them.

1) Is it necessary to assign a lease even if i was doing a double closing?

2) Why and when would someone assign, and would that affect your cashflow?

I feel bad for asking all these questions, but i'm really looking forward to the day when i can finally give back to the BP community.

@Brandon Stewart

I like 1 closing with sandwich lease options.

How I do that:

1. Get TBer pre qualified with lender.

2. Tell the Seller the property is about to close.  Talk to Seller about amending your LO with Seller.  You sell your interest in your agreement from the TBer to the Owner.  Tell the Seller you want 1 closing.  I create an agreement for all parties and escrow instructions for my profit, with full disclosure to Owner and TBer.

The LO is under scrutiny when made part of the Lease.  A high percentage fail and thus are easily seen as a scam.

My LO was structured in two documents to avoid the issue AND both the lease and the option were NOT ASSIGNABLE.  Like HECK some leasee is subletting my property.

@Brian Gibbons

I think i understand. So is that considered a reverse assignment? If that's the case, then the agreement you have with the seller gets discarded right? Does the money you paid for your option with the seller get refunded somehow? Perhaps in the new agreement?

I'm fully prepared to do a double closing where there's two sets of closing costs 

but I try to talk to the seller to redesign the deal so there's 1 closing only if the TBer has confirmed financing

I see, so do you choose an assignment because its less complicated? or is there less closing cost with an assignment? Thanks again for all your help @Brian Gibbons . It goes a long way!

@Brandon Stewart

Think about it re sandwich:

You need to get financing to buy from seller, then have TBer buy from you.

Transactional funding is not easy to get to get on title, and traditional bank financing is not easy.

So I like to have 1 transaction, from seller to Tber, with a note being my profit from the sandwich, paid to me at closing - settlement.  There is no assignment here.

Now on a lease option assignment, not a sandwich, where you lease option from seller and assign to TBer, you need to understand the TBer needs to get a mortgage, and it is stronger for the TBer to NOT HAVE AN ASSIGNED OPTION, but to have to the TBer a DIRECT OPTION from the seller.

So what I do is have my original option recorded, and have both the seller and TBer sign an option release fee document, and TBer pays me an option release fee.

In return, a new option and lease is created in the name of the Seller and TBer.

Hope that helps.

That cleared up a lot! So basically, i should try to get paid by a note when closing a sandwich, and only use transactional funding if i have no other choice. I'll have to do some research on how to create a note at settlement, but this has definitely pointed me in the right direction!

Thanks again for your help @Brian Gibbons

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here