27 Oct What is a Sandwich Lease Option
If you’ve been interested in real estate investing for a while, or even if you’re new to real estate investing, you may have heard the term “sandwich lease.” But what is a sandwich lease option?
In short, a sandwich lease is when the investor (you) has the right to sell the purchased property before the term of sale is complete.
Typically, the investor will purchase the property with monthly payments and a term when the seller will receive the final payment for the total sale price. Once the contract between the investor and seller is complete, the investor turns around and sells the property–usually on a lease purchase.
Structuring a sandwich lease
Now that the question, “What is a sandwich lease option?” is answered, it’s time to answer the second most asked question: “How do you structure a sandwich lease?”
With this sandwich lease, which was negotiated and structured by one of our students, the lease term was 36 months.
For this particular deal, the home came from an expired real estate listing. The house was on the market for approximately 60 days when the listing expired. Our student was able to negotiate a deal within two weeks of contacting the seller.
Before we dive into how the deal was structured, we would like to remind everyone that we use a formula to develop a sale price for sandwich deals. We take the market listing price and calculate how much debt the seller has and offer the difference.
So for this particular deal, the seller owed $220,658 and had $29,000 in equity, making the purchase price $249,658 on a 36-month term.
Once the contract was complete, my student turned around and put the house on the market for $284,900.
From there, our student negotiated an $8,550 deposit plus the first month’s rent, which was set at $2,475. Within about five weeks of putting the house on the market at that price, our student found a buyer who was looking for a lease-purchase contract. In addition to the 3% deposit and the first month’s rent, this buyer wanted to put an additional $10,000 down toward the down payment of the house, which our student will receive after the next two tax seasons.
Our student’s original contract with the seller was for 36 months with monthly payments of $2,166, including principal, interest, taxes, and insurance. And, as we already know, the buyer was making payments of $2,475. At the end of the month, our student was pocketing $309 in profits each month for a total of $11,124 over the 36-month lease term.
Now, for the breakdown of Payday #3. The price premium was $39,242 plus a principal paydown of $29,200. If you subtract the Payday #1 deposit of $18,550, he had a cashout payment of $45,892 for a total profit of $78,041.
This particular student went from making, on average, around $50,000 on each deal to now making nearly $80,000!
If you would like to hear the full story of how he created profits like this and how he overcame mental blocks to increase his earnings, check out the entire interview and learn his insider secrets. Answer the question ‘what is a sandwich lease option‘ here.
When a Sandwich lease might be a good option
Sandwich leases may not always be the best option for your investment interests. Since there are several ways to invest in real estate, it’s important to do what you’re comfortable with. But, if you’re unfamiliar with the different investment options, it will be more challenging to know what’s right for you.
So, we want to tell you about the Sandwich Lease and when it might make for a good investment opportunity.
- In the instance that the homeowner doesn’t want to give up the deed yet but also doesn’t need immediate cash.
- When a homeowner is behind on a mortgage and has little equity in the property.
- If the mortgage payment is so low, a rent-to-own agreement will cover the mortgage cost and bring some cash flow.
- When a home is move-in ready, and the seller is in good standing with the bank but no longer wants to live in the house.
These are just a few instances when a Sandwich Lease may be an excellent option for your investment portfolio.
If you have any more questions about the real estate business or want to learn more be sure and visit the Smart Real Estate Coach blog.
Don’t forget! Get your free copy of our Real Estate Investor’s Blueprint. Just fill out the form to the right and we’ll email you our step-by-step guide to getting into investing and owning more homes without using your cash or credit.