Owner financing - Lease Option

8 Replies

So I came across a property that I think I can create a sandwich. I’ve been reading and reading about lease option sandwiches and I think I’m ready to go.

This particular deal is offered as owner finance. 5k down, 30 year amortization, no balloon. 160k purchase price. Payments would come out to about 900-1000.

I want to turn around and lease option it to someone else. I haven’t begun marketing at all and I can see that it’s super intensive, but just the logistics of going from owner financing into, lease option will work, correct??

I’ve only heard of a lease option sandwich.

You guys seeing any holes in this strategy?

For one, you haven't mentioned what you will be optioning (property cost) to the eventual tenant/buyer for.  Also, what will the rent be, and what will the taxes and insurance be?

The Sandwich works best when you are are buying it as a LO too.  Have you tried to offer your "control" of the property to being a LO instead of a mortgaged purchase?

Like Joe said, you left out a few pieces in this puzzle to be able to answer your question.
For a sandwich lease to be safe and profitable, there needs to be a spread between your terms with the homeowner and your terms with the future tenant/buyer.  For example, if you are coming out of pocket $5K, will you be able to recoup that from a t/b?  If your monthly payment is $1K, will the rent you can charge be more?  If you're purchase price is $160K, what will you be able to set as the option price to your t/b?  All of this needs to be considered before entering into a sandwich lease.  Also, are you financially and emotionally prepared for a possible problem along the way?  A vacancy, for example.
My general advice to someone new in this strategy is to forego the sandwich strategy and consider a cooperative assignment.  Risk free and no out-of-pocket cash needed.

If you buy it with owner financing from the seller, you will be the owner (in theory unless this will be a CFD or LC). That's thing 1.

If, as the owner, you decide to offer it as a lease option to someone, there is no sandwich.

I don't like SLOs in general, especially for the newer and undercapitalized.  The buy it with SF and 'sell' with LO plan though is generally a hit, especially if the property needs work I don't wanna do and appreciation potential is limited.

@Michael Carbonare

Thanks for the tip Michael.  Yes there a lot of variables.  That I would absolutely have to work out.  Can you describe what the cooperative assignment is?  Very new to all this but I know something is out there for me in a low money down deal.  Thanks Again!

 @Steve Vaughan

Thanks for the tips.  I like the Seller Finance to Lease Option idea as well.  I guess that's what I was trying to say in my convoluted explanation lol.  Any tips that I should know going in on a Seller Finance Deal?  

The property that I mentioned above is 160k. The 'seller' is a property company that will 'help' people buy homes with no to low money down. Their offer is 5k down, 30 year fixed, 5% interest. I've yet to speak face to face with anyone on this but over the phone and through email the guy is adamant that I will not be coming out of pocket more than 1k a month, PITI.

I would never do something without studying the contract, terms, etc. But is there something out of the ordinary that sticks out to you.  The Property is probably in a B- area.

What are the major concerns going into a seller finance deal?


Thanks my man!

Originally posted by @Brian Mackey :

 @Steve Vaughan

Thanks for the tips.  I like the Seller Finance to Lease Option idea as well. Any tips that I should know going in on a Seller Finance Deal?  

Only go into contract with the owner.   Verify on the county assessor website who owns it, when they bought, how much they paid.  Takes me seconds to verify this easy info. 

Only do terms where you will own it while you're making payments.  No Land Contracts. Especially with a company that doesn't even own the property.   This sounds like a scam.

Originally posted by @Brian Mackey :

@Michael Carbonare

Thanks for the tip Michael.  Yes there a lot of variables.  That I would absolutely have to work out.  Can you describe what the cooperative assignment is?  Very new to all this but I know something is out there for me in a low money down deal.  Thanks Again!

In my estimation, cooperative assignments are the best starting strategy for most new investors looking to get into this biz with minimal risk and out-of-pocket capital.  The short answer to what is a cooperative assignment:  it's a type of lease option where you reach terms with the homeowner and then assign the deal to a tenant/buyer.  You collect your assignment fee and are out of the deal.  You're making your money because you know how to put the deal together and you have the paperwork to do so.  Again, that's the condensed version.