Sandwich Lease Options
Is there an opportunity for you to use sandwich lease options in today’s market? How many For Rent signs do you see that are old or faded? How many landlords do you know who can’t find a good tenant? How many vacant houses do you come across when you are looking for deals?
What if you could make money every month from those “problem” properties?
If you are looking for cash flow now with a future upside, then Sandwich Leasing Options are a strategy you will want to know and deploy. Sandwich leasing is simply leasing a property from an owner and then turning around and sub-leasing the property to a tenant. You make the difference, or the spread, between the rent you pay and the rent you are paid. Adding the option gives you the opportunity to buy the property if you choose to sometime in the future. Before you read further…click here if you don’t know what is a lease option.
The Tenant Side of Sandwich Lease Options:
In order to use sandwich lease options profitably, you must know the rental values in your area. You also need to know what types of houses tenants want to rent. It’s always a good idea to start with the needs of your “end user” – the subtenant.
The type of person who will rent a property from you will most probably vary according to your area. For instance, if you live in an urban area that caters to young single professionals, they will want one or two bedrooms and an easy commute to their jobs. A big back yard may not be a drawing card for this type of tenant. If you are working in a suburb and favor family neighborhoods, then your end user will lean towards a minimum of three bedrooms, two baths, with a fenced back yard and a good school system.
No matter what the specifics are that tenants are looking for, there are certain things that every tenant wants.
• Safe neighborhoods with access to commuter routes and shopping. • A clean, well-lit house or apartment. • The best property in their price range.
Look at it this way: If you wouldn’t want to live there, a good tenant probably won’t want to live there either.
The Owner Side of Sandwich Lease Options:
Why would an owner agree to rent his property to you at less than retail? First of all, the property is sitting empty. That is costing the owner money every month. It is also costing him time and worry. While the owner might not get the total rent from you that he was looking for, something is better than nothing. And, if you are taking some of the management worries off his shoulders, that has a dollar value to him.
Tired and out-of-area landlords are your best bets when you are looking for motivated owners. A property that was once easy to rent and take care of may have become a burden. Many rental properties are houses that people can’t sell due to the downturn in the market. Those houses in particular are good targets for sandwich lease options.
An important part of the sandwich lease option equation is to be on the lookout for why an owner hasn’t been able to rent his property. Sometimes the reason the house is still empty is something as simple as they don’t advertise enough or don’t advertise in the right places. Maybe the owner lives too far away and isn’t open to making the drive to meet prospective tenants at a time that is convenient to them. Or maybe the place is not clean enough or the lighting is bad. Many times, you can make minor tweaks to a “loser” property and have it rented quickly. As a disinterested third party, you are able to see what needs to be done a lot more clearly than an owner who may be too close to the situation.
Putting Your Sandwich Lease Options Together:
How much should you make on the spread? I look for a minimum of $200 per month on a single family house. $200 gives me enough profit to cover any expenses I may have.
Why adding the option is a no-brainer. When you lease a property, an owner will usually want first and last months’ rent and a security deposit. If you’re going to put that much money up, it’s not too far a stretch to add a bit to it and call it option money instead of a security deposit.
While home values are not yet climbing in most areas, they seem to have leveled off. A five-year option gives you the opportunity to add to your down payment and establish an equity interest in the property. When you do exercise the option, you may be able to finance it as a re-finance rather than a new loan. Or, if you have made all your payments on time, you might find that the owner would be happy to continue receiving payments from you, either by extending the option or by holding a first mortgage.
One last thought: This strategy isn’t just for single family residences. You can use Sandwich Lease Options for apartment buildings, commercial and retail property, and mobile homes.
