Louisiana HELP - Lease option / Sandwich Lease

13 Replies

Hello BP,

I have been wanting to ask this questions for about a year now, and have finally built up the guts to get some help on this topic. Hoping the BP communicate can provide the insight and guidance I have been yearning for.

I live in the Shreveport / Bossier Louisiana area and I am very interested in getting into REI through rent - to - own (lease options) or sandwich lease options. I feel like this would be a great way of getting my foot in the door of real estate investing, so that I can eventually build a portfolio of my own rental properties.

Questions:

1. Is this legal to do in the state of Louisiana. If so, do you have any recommendations on lawyers I can speak with to put together legal contracts that are required for this type of investing?

2. I'm a little confused on the difference between a lease option (if you don't own the home) and a sandwich lease option. Could someone please briefly explain

3. What steps are required in doing real estate investing this way?

Thank you in advance for any help and information that you can provide for me on this topic. 

Regards,

Chris 

Originally posted by @Christopher Dorsey :

Hello BP,

I have been wanting to ask this questions for about a year now, and have finally built up the guts to get some help on this topic. Hoping the BP communicate can provide the insight and guidance I have been yearning for.

I live in the Shreveport / Bossier Louisiana area and I am very interested in getting into REI through rent - to - own (lease options) or sandwich lease options. I feel like this would be a great way of getting my foot in the door of real estate investing, so that I can eventually build a portfolio of my own rental properties.

Questions:

1. Is this legal to do in the state of Louisiana. If so, do you have any recommendations on lawyers I can speak with to put together legal contracts that are required for this type of investing?

2. I'm a little confused on the difference between a lease option (if you don't own the home) and a sandwich lease option. Could someone please briefly explain

3. What steps are required in doing real estate investing this way?

Thank you in advance for any help and information that you can provide for me on this topic. 

Regards,

Chris 

 Yes, they are legal. I do Lease Options and Sandwich Lease Options with people.

Generally, if a seller wants to sell but for some reason can't get the house sold they may want to do a Lease Option to a buyer. Because of the law changes you must make them two separate documents. In a Lease Option the Title does not change hands until the Option is exercised. 

You can then Sub Lease (Sandwich Lease Option) to someone else. The play would go something like this:

I "buy" a house (Lease Option) for $200,000 with $10 Option Fee and $1200 in monthly payments for a 3 year Option.

I "sell" the house (Sandwich Lease Option) for $220,000 with $10,000 Option Fee and $1600 in monthly payments for a 2 year Option. So,

Buy $200,000

Sell $220,000

Built in profit $20,000

Option fee I pay $10

Option fee I charge $10,000

Cash Profit to me $9,990

My monthly payment $1200

Their monthly payment to me $1600

My monthly cash flow $400 each month for two years until they exercise the Option.

I have 3 years to exercise my Option but I given my buyer 2 years to exercise theirs. That way, if they don't exercise their Option, I have an additional year to Lease out the house or exercise my Option

Account Closed Thanks so much for the reply. Very insightful information. Did you have a lawyer put your contracts together. I am sure I will need contracts specifically made in Louisiana, but any chance you can share with me what your contracts look like so that I can have an idea of what to put together? if so, you can also direct msg me and I can send you my email. 

Again, I appreciate your help and insightful information. 

Thanks!

Originally posted by @Christopher Dorsey :

@Mike M. Thanks so much for the reply. Very insightful information. Did you have a lawyer put your contracts together. I am sure I will need contracts specifically made in Louisiana, but any chance you can share with me what your contracts look like so that I can have an idea of what to put together? if so, you can also direct msg me and I can send you my email. 

Again, I appreciate your help and insightful information. 

Thanks!

 Contracts and laws are state specific so you want to find a real estate attorney in your area gor applicable paperwork and rules 

Account Closed

You can google Wendy Patton and / or Chris Goff for more information on Lease Options / Sandwich Lease Options they have some very good information and videos out there.  Chris Goff has some software that looks great as well REIPro.  Wendy has a few books on the topic to reference if you like to read.

Jeff V

Originally posted by @Jeff V. :

@Mike M.

What do you use to get all of the details of the transaction down before the lawyer gets involved to draft up the final documents?

Do you use a letter of intent or something similar?

Also what strategy do you use the most?  Cooperative Lease Option (Assignment), Sandwich Lease Option?  I've always thought that the Sandwich Lease Options has alot of moving parts and seems like it would be difficult to actually execute in the real world with real people involved...  they look great on paper or an idea board, just not sure how they go together in the real world.

@Christopher Dorsey

You can google Wendy Patton and / or Chris Goff for more information on Lease Options / Sandwich Lease Options they have some very good information and videos out there.  Chris Goff has some software that looks great as well REIPro.  Wendy has a few books on the topic to reference if you like to read.

Jeff V

 In my case I've been doing these for decades so I don't use an attorney for Lease Options at this point. But anyone just starting out I would advise using an attorney until you know what you are doing. I do use an attorney on Subject To and Wraps since new notes are being created. Agreements are state specific and local laws have to be taken into consideration. If I was just starting in Louisiana, since I haven't done any in Louisiana, I'd have a local attorney review my agreements and suggest any changes for local use.

Sounds great Account Closed!  Whenever I read about lease options I always wonder...How do you minimize the risk of not being able to find a person for a sub lease?  I imagine that is in your contract with the original seller right?   But then why would someone agree to be locked in with you for say 60days while you find someone else to sub to?  Wouldn’t the buyer be better off marketing the property on their own?  Also, how do you find someone for a lease to own if you don’t own the property and can’t show it?

@Christopher Dorsey

I dont mean to piggy back on your post- But another thought to this type of creative financing, what happens if Original Seller defaults on MTG, where does that leave the 1st Lessee as well as the 2nd lessee? seems it would be a bit of a legal nightmare- what can an investor do to ensure this cant happen?

@Christopher Dorsey @Jim Keegan @Laura Baragiola

You can record a Memorandum of Lease Option (Not the Lease Option itself, just a Memorandum) so if the Seller stops paying their mortgage and it goes to Notice of Default, the attorney will pull a Title Report and see your Memorandum and notify you. About 1/3 of properties don't have a mortgage against them so there is less worry about that happening with them.

There are FAR MORE people trying to buy a house that will do a Lease Option than you can imagine. I used to be a Loan Officer and about 80% of people who want to buy a house don't fit lending guidelines but many of those will be perfect for a Lease Option.

(I never use the word “contract”, it scares people) My agreement with the Seller has no contingency that I must find a sub leasee first. Some people include a clause to that effect, but I don’t. If I can’t find a sub leasee, it’s my problem not theirs, I make my payment anyway and on time. The Lease Option is a legally binding agreement between the Seller and me and I keep up my end of the bargain no matter what.

I just won a court case based on those facts, where a Lease Option Seller didn’t keep up their end of the bargain. They had to pay me ALL of the Agreement I was to receive from the Buyer and I had to pay None of the Agreement to them. They settled just before trial. Ruled in my favor based on the Agreement, the facts and the law. I keep impeccable documentation and it pays off. I have an additional two years to decide if I want to sue my Buyer for breach of agreement.

Sure, the Seller could have found a deal that paid them more (oh wait, they had the house on the market for 9 months * NINE MONTHS and couldn’t sell the thing), so they took my deal.

I had given the Seller $10 for a down. I got $10,000 down from my Buyer. So, I was $9,990 cash ahead. I had the property Sandwich Lease Optioned in 1 month with cash flow to me of $400 per month with the aforementioned $10,000 down and selling for $30,000 more than the Seller was asking. (So there is “back end” equity.)

When the Seller saw the numbers, the Seller got greedy. The Seller changed their mind after I found a Buyer and I had put my Buyer into the property on a Sandwich Lease Option. The Seller tried to go around me and tried to put together an Agreement directly with my Buyer bypassing me. They should not have done that. That isn’t nice. It isn’t nice to trick me. I don’t get mad, I get my attorney. ;-) One of my private investors is a Doctor and he has a sign in the back window of his very nice car that reads “My Attorney Can Beat Up Your Attorney”. I take the same approach. I’m extremely easy to work with, I stick to the rules and Agreements but don’t even think about breaking an Agreement. Without Agreements there is chaos.

As a fellow Louisianan, I wanted to chime in that it is especially crucial to use a local real estate attorney here, for those contracts.  At the very least for your first deal.  We are the only state that has a Napoleonic Code.  I know, as a layperson myself, that it doesn't feel any different.  But when you ask most people in the legal field, they will tell you that it is VERY different.  And Property Law is one of the main areas with differences.

I'm interested in assigning L/o contracts as well..I've checked out Joe Mcall's stuff and it's really good..It's quite thorough..However, I have no idea how to bring up to the seller that I'm gonna assign the contract to a tenant/buyer..For some reason, this is always glossed over..In other words, how do I open up w/ my pitch? Because when I inquire, the seller will think, and rightfully so, that I'm the one who wants to do the deal

I know this is an older post, but... Louisiana is completely different :)

If there's an existing mortgage on the property, by law you must use a licensed/approved escrow agency. See http://www.ofi.state.la.us/Bond%20General.htm and http://www.ofi.state.la.us/WebsiteListBondForDeedB....

You can use their services even if there's not an existing mortgage - and pass some of the fees on to the Buyer.  Escrow agencies have definitely made my life easier.  

Originally posted by @Christopher Dorsey :

Hello BP,

I have been wanting to ask this questions for about a year now, and have finally built up the guts to get some help on this topic. Hoping the BP communicate can provide the insight and guidance I have been yearning for.

I live in the Shreveport / Bossier Louisiana area and I am very interested in getting into REI through rent - to - own (lease options) or sandwich lease options. I feel like this would be a great way of getting my foot in the door of real estate investing, so that I can eventually build a portfolio of my own rental properties.

Questions:

1. Is this legal to do in the state of Louisiana. If so, do you have any recommendations on lawyers I can speak with to put together legal contracts that are required for this type of investing?

2. I'm a little confused on the difference between a lease option (if you don't own the home) and a sandwich lease option. Could someone please briefly explain

3. What steps are required in doing real estate investing this way?

Thank you in advance for any help and information that you can provide for me on this topic. 

Regards,

Chris 

Chris, following up on this post, have you been able to do any lease option or subject to deals in Bossier City/Shreveport area? I'm originally from Monroe and thinking about looking for deals in my hometown & the Shreveport area. Let me know. I've also send you a DM.