Can you use the tenant's dowpayment to pay the landlord

23 Replies

When you do a sanwhich lease, you have to give the landlord a downpayment, right? (Sometimes). Can you use the downpayment you'll receive from the tenant and give it to the landlord?

You wouldnt have to use your own money because the tenant would pay the landlord.

Originally posted by @Fili Aguirre:

@Joe Villeneuve the payment they give you to have an option to purchase the property

 That's NOT a downpayment to Buy the property.  That is 100% payment for the Option Agreement that gives them the OPTION to buy the property.  When the Option in the Option Agreement is exercised, there is a Purchase Agreement that is signed by both parties...just like any other sale of a property.

@Joe Villeneuve yes. Can I use that payment to pay the landlord? If he wants 5k for the property then I tell him ill give it to him in 30 days then ill get tenants and thy will give me 5k and thats how i would pay the landlord

@Joe Villeneuve ooh also, When you tell the seller that he wont pay for realtors comission, repairs, property managment, etc, wouldnt it be better for him to pay for that if he wants to sell the property? Bevause if he wants to do a "sandwich lease"with me, he would have to pay me more than 6%. Why would he prefer to give me a higher discount on the property than list it with a realtor and just pay 6%?

Please help me Joe. I dont understand that

Originally posted by @Fili Aguirre:

@Joe Villeneuve ooh also, When you tell the seller that he wont pay for realtors comission, repairs, property managment, etc, wouldnt it be better for him to pay for that if he wants to sell the property? Bevause if he wants to do a "sandwich lease"with me, he would have to pay me more than 6%. Why would he prefer to give me a higher discount on the property than list it with a realtor and just pay 6%?

Please help me Joe. I dont understand that

 That doesn't matter.  You can't sell what you don't own or control.

@Joe Villeneuve i will control it. I just need to make seller sign some contracts. But, how will I convince him to sell me the property if he can just list it with a realtor and pay 6% instead of giving me his property for 10-15 % discount?

Originally posted by @Fili Aguirre:

@Joe Villeneuve i will control it. I just need to make seller sign some contracts. But, how will I convince him to sell me the property if he can just list it with a realtor and pay 6% instead of giving me his property for 10-15 % discount?

 Why do you have to get a 10-15% discount?

@Joe Villeneuve well, they will give you 3k 5k or 10k option to purchase so if I have 3k in equity and they give me 10k down ill have to put money on the table because i wont have enough equity .

Originally posted by @Fili Aguirre:

@Joe Villeneuve well, they will give you 3k 5k or 10k option to purchase so if I have 3k in equity and they give me 10k down ill have to put money on the table because i wont have enough equity .

 I have no clue what you are saying here.  First...who is "they"?

Originally posted by @Fili Aguirre:

@Joe Villeneuve well, they will give you 3k 5k or 10k option to purchase so if I have 3k in equity and they give me 10k down ill have to put money on the table because i wont have enough equity .

 You're not following what's happening here.

First, stop referring to the Option Consideration as a Down Payment.  It's not.  There is no Down Payment until two parties sign a Purchase agreement.

There are 3 ways the investor makes money doing a Sandwich LO. All of them are in the "spread"...the difference between what the REI pays the current property Owner/Landlord and what the Buyer/Tenant pays the Investor:

1 - Lease Fee. The REI pays less to the Owner/Landlord (OL) than the end Tenant/Buyer (TB) pays to the REI.
2 - Option Consideration.  The REI pays the same % of the Agreed "future" purchase price for the Option to Buy the property as the TB pays to the REI.  The "spread" happens because the OC is based on the two different Purchase Prices.
3 - Purchase Price.  The TB pays the REI more for the property than the REI pays the OL for the property.

Equity doesn't exist.  Don't worry about it.

Down Payment doesn't exist.

@Joe Villeneuve

Sandwich lease ( why 10-15 is the minimum)

House is worth 100k

I sandwich it for 97k

Equity 3k

Rent I must pay the landlord 1k

Rent I charge the tenant 1,200

Downpayment I give the landlord 5k

Non-refundable deposit from tenants 10k

Cashflow 200$

I will buy it for 100k from he landlord

Tenants will buy me the house for 100k

But they gave me 10k deposit so they will buy the house from me for 90k

I just have 3k in equity.

Plus the 2,400 in cash flow in 1 year. Total is 5,400 profit when the tenants buy the house. They gave me 10k. So they will buy the house for 90k but I just have 3k in quity which means Ill have to put money on the table because i wont have enough equity in the house.

So, now. My question is.. How can you do a "sanwich lease" with a house with no equity?

@Joe Villeneuve well, how will the tenant pay me more for the property if i have no equity? How will i be able to Resell it with no equity?

How will i receive the option consideration if the property has no equity?

Originally posted by @Fili Aguirre:

@Joe Villeneuve

Sandwich lease ( why 10-15 is the minimum)

House is worth 100k

I sandwich it for 97k

Equity 3k

Rent I must pay the landlord 1k

Rent I charge the tenant 1,200

Downpayment I give the landlord 5k

Non-refundable deposit from tenants 10k

Cashflow 200$

I will buy it for 100k from he landlord

Tenants will buy me the house for 100k

But they gave me 10k deposit so they will buy the house from me for 90k

I just have 3k in equity.

Plus the 2,400 in cash flow in 1 year. Total is 5,400 profit when the tenants buy the house. They gave me 10k. So they will buy the house for 90k but I just have 3k in quity which means Ill have to put money on the table because i wont have enough equity in the house.

So, now. My question is.. How can you do a "sanwich lease" with a house with no equity?


See my last post above.

What are these deposits for?

This is how it works.  You have an Option to Buy the property Agreement that says in the future you can buy the property for $100k.

3 Spreads: 
1 - Rent Spread.  You rent from the OL for $1000/month and the TB rents from you for $1200/month. 
     Spread = You make $200/month, or $2400 for the year in profit.

2 - Option Spread.  You are paying an Option Consideration of 5% of the Future Purchase Price mentioned in the Option Agreement.  You pay $5,000.  The TB has an Option to buy the Option Agreement from you for $6,000 based on 5% of the future value of the property being $120,000.
     Spread:  You make $1,000 on the difference between what you are paying and what you are getting

3 - Buying the property.  The Option to buy your Option on the Property is $20,000...the difference in the cost of the property from #2 above.  When the TB actually executes "their" Option to buy your Option, they pay you $20,000...then they execute your Option to buy the Property (the original Option between you and the OL) and buy the property for $100,000.  That means they are paying $120,000 to buy the property.  $20k to you, and $100k to the OL.
     Spread:  $20,000 profit to you.
Total profit if TB exercises the Option to buy your Option from you = $23,400
Total Profit if they don't:  $3,400

Originally posted by @Fili Aguirre:

@Joe Villeneuve if I negociate the house for 100k and but its worth 120k.. isnt that 20k equity? You said equity doesnt matter.

 I said it didn't matter based on the statement I was referring to at the time.  You're jumping around so much, it's hard to keep things straight because you don't have everything (anything) straight in your own mind yet.  You'll get there.  I have confidence in you.

You can either get a discount on the property reflected in the Option to Buy, or you can base what the TB pays you on a future inflated value...or a combination of both.  

@Account Closed   Reading through this thread it is obvious that you aren't ready to pursue a sandwich lease.  Done correctly it can be a profitable deal.  Done incorrectly and you are looking at losses and lawsuits. If you are just getting started with lease options I suggest you consider cooperative assignments for now.  Raise some capital, and gain some experience, then grow from there.