Properties and/or sellers ripe for a sandwich lease option

16 Replies

I've been researching sandwich lease options for a little while now and they're pretty attractive, what with the multiple profit centers and whatnot.

However, what I can't seem to find is details on what seller situations and/or properties lend themselves well to this particular strategy. I'd really like to get out there and see if I can get myself into a deliciously lucrative sandwich but I don't even know what I'm looking for.

I've seen/read about some people making money with sandwich lease options even on market-priced homes. Feels like I'm missing something here.

Sorry if this is too noobish for you. Gotta start somewhere! 

Mic check....1......2....is this thing on?

@Brian Gibbons thanks for the reply.

Would you care to expound on your suggestion to obtain a RE license in the context of my original issue?

Get your license  and find sellers that have pretty houses w low equity, expired listings.

 Then find buyers that just missed financing  can offer them a lease with an option to purchase  

@Brian Gibbons I'm just curious why I would need a license for such activity. Can I not explore houses on sites such as Realtor.com and the like, as well as put in the effort to find off market properties? Seems a bit much to go through the trouble for my license at this stage just so I can have access to the MLS.

You can do what ever you want as far as looking at sites.

When you talk about lease optioning property and subleasing and sub optioning in California to sellers and buyers, it is wise to be licensed. I have talked to enough attorneys regarding activities of being a licensed real estate agent and how the Bureau of Real Estate in Sacramento views unlicensed activities.

Either get your license or have a licensed agent - broker in your LLC, that's my advice, if you are doing lease option Dios, subject to deals, or wraparound AITD deals.

For cash deals, no license needed.

@Brian Gibbons thanks very much for explaining a bit more. I'll definitely be touching base with a licensed agent as well as working closely with a real estate attorney to make sure I'm compliant.

There are several ways to structure these deals, but to be in compliance with current regulations and to be very fair and clear to all parties involved, your terminology and the clauses of your agreements actually matter. Before getting into these deals, you should have a clear strategy in place and be well researched. If your going to do sandwich lease options on someone else property you need to really ensure you're doing things right, otherwise you could easily have 2 parties (seller & buyer) suing you. Doing these deals on someone else's property can be profitable since you don't have much invested into it, but assuming you get a seller to agree to it, can potentially be quite problematic. Doing this strategy on your own properties is much safer and a profitable alternative to the standard rental. @Brian Gibbons has some interesting strategies and worthwhile trainings to help keep you protected.   CA is a very litigious state and if you're going to operate as a business entity then it gets expensive fast.  You start off at about $900 minimum just to get started with LLCs in CA state with an $800 annual fee plus taxes.

@Mike B. thank you for your input.

What I am getting from your post is that I should make sure to construct the contracts very carefully with an experienced real estate attorney and perhaps some help from a local investor experienced with this type of deal. Correct me if I'm wrong.

You're not wrong Gaege.

I'd also encourage you  to develop  a solid  strategy  here  and review that  with  some qualified folks .  You also need to strongly consider  not only  the content of the forms you use but  what type of forms, your processes, your marketing, finances, your funding reserves,  landlord tenant matters, property management  issues, if you'll operate as a person or an entity, etc, etc...

Even doing a lease option assignment or wholesaling lease options in California it is wise to be licensed.

The way I advise licensed people is to list the property on Lease with Option to Buy. TBer pays a 3% option fee, which is your profit, seller sells for 97% of CMA average as a strike price.

You as a licensed agent earn 3%, seller gets a net sales price of 97% of average comps, TBer gets to use the house for 12 months, and buy at a fixed price.  TBer is responsible for paying closing costs for loan.

Your challenge as an agent is to find a broker that will accept a flat fee for these transactions.  Also finding a GREAT contract attorney that can protect all parties, including you the agent.

Protecting TBer - use a payment servicing center to take rent and pay PITI; record a memorandum of agreement; create all paperwork for sale in the future to be held in escrow until the property transaction is concluded; allowing extensions if TBer needs more time to get a mortgage.

Protecting Seller - strong paperwork in case of default by TBer, being fair to TBer as to sales price in case the property does not appraise in the future, making sure the option money is non refundable.

More info here

@Brian Gibbons Again, thanks so much for your input on the subject. I will explore more and take your advice into consideration moving forward.

Don't try that behind my back - - I'll take everything you own.  You're not a signator to my lease and if you were, it prohibits subletting or substitution.

folks can be lured into these as they see these as low or no money down deals and make money on the delta.. problems arise in a default situation and you have put the seller in a bad way and don't have the reserves to take the year to evict your lease option tenant and you have no income yet you still need to make the payment... its an advanced scheme in my mind only appropriate for those with Deep pockets... not starter and undercapitalized.. ( which of course I have no inkling to your =financial ability) however I have rescued numerous young and starter investors who did this and got in WAY over their ski tips

@Jay Hinrichs Couldn't you just save the 3% option consideration fee that the TB put down and use that to evict them and or pay any rent that the TB didnt pay? Then once they are out, put a new TB in the property and start the process all over again?

I think this would be better to do in a nice pretty neighborhood and check credit of TB. If you do research and put the right TB in place then the risk of no payment would decrease, right?

Originally posted by @Christopher Dorsey :

@Jay Hinrichs Couldn't you just save the 3% option consideration fee that the TB put down and use that to evict them and or pay any rent that the TB didnt pay? Then once they are out, put a new TB in the property and start the process all over again?

I think this would be better to do in a nice pretty neighborhood and check credit of TB. If you do research and put the right TB in place then the risk of no payment would decrease, right?

 In theory this is correct.. but in CA ( and all states are different) it could take you 6 months to evict them so that's six months of payments your making.. the could leave you a 5k mess ( pretty common in a eviction scenario).. and usually when folks starting out do this with limited capital when they make money on these deals they DONT save it they will spend it  LOL.. this is partly what crashed the market last decade.. investor with little to no skin in the game and no where near enough capital reserves.. any business with out proper reserves is destine to failure. 

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