I'm having trouble finding information on the different ways you can close a lease option sandwich deal when the buyer is ready to buy.
I talked to an attorney, and he said that i would need to assign the option that i have with the seller, over to the buyer for a fee (my profit).
The other way i could close is by simply buying the house and selling it on the same day.
For all you experienced investors out there, which method would you recommend?
Also, if i simply assigned my option over to the tenant, what happens to the option that the buyer paid for?
I understand that when my tenant is ready to exercise their option, i can go ahead and exercise my option by doing a double closing. But if i assign my option, then there's never a point where i own the home. I was just wondering how would go about applying the tenants option money to the sales price.
Any help would be appreciated.
Your attorney probably isn't expereinced in sandwich lease options. In my experience most people I deal wth aren't so I just explain to them what I need them to do as their role in the process.
1st - Your lease option with the seller needs to be clear about your intention to sublease as well as have the option to assign. But contrary to your attorneys suggestion it is not in your best intrest to assign for several reason, many of which you have already pointed out. As far as your seller is concerened, you are their tenant responsible for all repairs maintenance and vacancies regardless of what happens with your buyer during the lease. One of the promises I make to my sellers is that my goal is for them to never have to hear from me or see me, just collect the monthly check until we sit down at the closing table within the next few years (however long the term may be)
2nd - If you were to assign the contract there would be no closing invovled at all unless your buyer is coming to the table with the full purchase price and/or bank loan but in that case this would not be a sandwich lease at all, it would simply be an assignmnet of contract and you would not need to collect an option deposit just the assignment fee or whatever spead you may have sold the contract for.
3rd - You need to make a completely seperate lease option agreement for your buyer that has nothing to do with the seller agreement. Obviously you are going to increase the purchase price and the monthly payment for your spread but this way the seller and the buyer never know that their is any price discrepency until closing and by that time it doesn't matter because the process is already in motion. It's not like they thought that you were doing all this for free.
So you should be in the clear assuming that your sellers agreement states your intention to sublet therefor giving you the legal right. All you need to do is write up the lease option agreement for your tenant/buyer and hand them the keys. It shoud be that simple. No assignments necessary, You want to be the meat in the sandwich for the entire length of the agreement, collecting your spread so you deal with and act as the liason/ de foacto property manager to both the seller and buyer. They don't need to deal with or even know each other at all. There is also no closing necessary until the buyer gets a bank loan and is ready to close at your agreed upon purchase price which you should have increased by about 15% to 25% to anticipate possible apprecition and so that you get a nice pay day on the back end for all your hard work.
Many attoney's and investors make this seem harder than it is. It's pretty basic and it sounds like you have a good grasp on the bulk of the process. Congrats on getting the contract and finding a buyer. Good Luck with your future deal.
If you are doing sandwiches, watch out for not being on title first as per your DE law. Being on title allows you to do whatever you want. When you are leasing and subleasing, you own nothing,
@Bill Gulley has written much about sandwiches and getting in trouble with them. They are illegal in TX due to not possessing Fee Simple Title.
Could you buy on terms, as in land contract or note plus a mortgage - DOT? Then do a lease option?
Also follow landlord tenant law, you can not force a tenant to perform and pay for maintenance.
What could be done instead of either an assignment or double close (getting transnational funding is tough sometimes) is to do what is called a Reverse Assignment: You talk to the seller and convince the seller to allow you to place a note owed to you for your profit, and re do the lease with option between the seller and the tenant buyer, which creates 1 closing. You get your note paid at closing. Do not do this unless the tenant buyer is prequalified to fund.
I suggest you not do that Reverse Assignment (that's guru stuff) a valid note secured by real property must be funded by cash or equity from the sale of that property. There are also minimum amounts that may be secured by real estate mortgages which varies by state, usually 5 to 10 thousand.
Filing an illegal or invalid lien on real estate is another violation of law.
Securing payment for services is perfected by the filing of a lien, not a mortgage! :)
Thanks for the info guys. That really cleared a lot up for me! So you recommend double closing for beginners?
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