You may be asking yourself, “What’s a sandwich lease option?” It’s an incredible financial instrument for creating profits without ownership. Let me explain.
It gets its name for the way everything is structured between the seller, you (the investor), and the tenant-buyer. You step in and negotiate a long-term option agreement with the seller, which gives you the right (but not the obligation) to close on the property within 1-5 years. Often, you also negotiate in the ability to assign the contract, and to let someone else other than you live in the property.
You then go find a potential tenant-buyer, perhaps someone who is a good person that has had a few financial knocks. Individuals who don’t qualify for traditional financing are prime clients for this sort of transaction. Often they will make ideal homeowners, but simply need a few years of documented on-time payments to help repair a spotty credit record. You then place them in the property with your own option agreement. If you structure it correctly, you can earn a spread on both the sales price and monthly payment amounts that you make to the original seller.
This is, of course, a highly simplified explanation of sandwich options. But my intent it to show you how it is very possible for you to start earning money through sandwich options.
By targeting areas with “pretty” houses in good neighborhoods, you will vastly increase the potential number of buyers you can attract. Since you don’t actually own the home, finding properties that are already in good condition is paramount. To make the most of your investment dollar, you will want to spend most of your money on marketing rather than repairs and clean-up. Additionally, properties in nicer neighborhoods minimize your risk exposure, as you won’t have to worry as much about vandalism or depreciating home values.
Sandwich options are an ideal strategy for the new investor because they carry limited risk and great upside potential. Further, they are an ideal match to the current market conditions. Motivated sellers and potential buyers with damaged credit are much easier to find. This technique of options has the potential to earn you a nice sum of money, but it does require work. Steve Zehala will be sharing with you a few other techniques that leverage sandwich lease options on October 23-24 at the REI Rainmaker Retreat. As with any investing technique, you need to find the right strategy that works best for you, learn it inside and out, and most importantly, TAKE ACTION!