Lease options are easy with a basic understanding about renting residential houses along with the basic house selling process. The simplest lease option is most suited for one-time sellers who want to use a creative approach to obtain the most cash flow and best selling price for a house. It could be the one-time seller’s primary residence or it could be an investor-landlord who owns a house in need of a creative sales approach. However, in this blog, I want to focus on sandwich lease option coaching FAQ.
The sandwich lease option builds on the basic lease option by bringing in a willing seller that you work with to connect with a tenant/buyer. The sandwich lease option simply adds one more step in the basic lease option process. In exchange for adding another easy to follow step, you create additional cash flow and profit for yourself as an investor – without ownership!
To your Success,
Sandwich Lease Option FAQ for Investors
Q1: What is the biggest difference for investors between a basic lease option and a sandwich lease option?
A1: The biggest difference is as the investor in a sandwich lease option, you don’t own the house. The tremendous advantage here is you have all upside in the deal with almost no down side. Along with minimal risk, you create an additional profit source with the sandwich lease option that isn’t available with the basic version.
Q2: What is the big difference or extra step in the sandwich lease?
A2: The main difference is while you don’t own the house, you do control the paperwork. Not owning the house is how you minimize your risk. Controlling the paperwork is how you create the additional profit source. So for investors, the sandwich lease option is primarily about the paperwork.
Q3: What do I need to know about the paperwork to get started?
A3: This is the big question I get the most frequently as a Lease Option Coaching FAQ. Let us begin with how the paperwork is organized and then move into some of the paperwork details. You essentially have two separate but related deals going on. The basic organization is creating two separate files that are kept together in your file system. In a computer, you create a folder with the street address of the property involved. Inside that folder, you create one subfolder for the seller’s paperwork and another subfolder for the end buyer’s paperwork. This makes everything for sandwich lease options easy to find when needed.
Inside of each subfolder are three main documents. You can reduce these down to one or two documents. However, three documents simplifies everything and keeps the intent clear about the three transactions you have with both the seller and the end buyer. These are also your three profit sources or profit points. The three main documents and profit sources are:
- Rental/Lease Agreement
- Sales Agreement
- Option Agreement
So, that is six different documents. One of each of the above to be signed by you and the seller and a different set that will be signed by you and the end buyer. The structure of each document will be the same for both the buyer and the seller versions. However, what is critically important are the dollar amounts, dates, and a few other variables. The difference between those dollar amounts, dates, and variables determine how much profit you make with a sandwich lease option. This is really as simple as some addition and subtraction math.
One important difference is you'll require the seller to maintain insurance on the house and put you on the policy as "additionally insured.” You will also want the seller to sign off on an "Affidavit of Liens,” a "Sellers Disclosure,” and "Bank Authorization.”
That’s it, that’s the basic paperwork!
Q4: That doesn't seem like much paperwork but how does everyone stay protected to keep this a minimum risk transaction?
A4: Another great question; because the sandwich lease option really is about the paperwork rather than you risking your own money. But you do want to protect your position in the deal. You have an “Affidavit of Liens” from the seller that is supposed to disclose any liens on the house (tax liens, mechanic liens, etc.). But it is still in your best interest to have a title search done to be sure there are no liens or that you at least know about any liens. In most states (probably all states), you cannot purchase title insurance because with sandwich lease options, your name is not on the title. That is the reason you have the seller sign an "Affidavit of Liens.” It says that the seller is not aware of any pending liens and that should any arise, you will be formally notified. You can never be sure that the seller didn't recently have major repairs made to the septic system (or something similar) and failed to pay for it.
Another reason for a title search is to be sure all of the names listed on the title are also the names on your option lease paperwork. It’s not all that uncommon following a divorce for the title not to be updated when one spouse is given full ownership of the house.
Q5: What else is important to know about a sandwich lease option?
A5: You want to record a "Memorandum of Option" with the county to establish your legal interest in the property. Your lease option paperwork defines your interest in the property but a "Memorandum of Option" informs everyone (including the courts) that you have a legal interest.
You don’t want to skip any steps or leave any blanks on the paperwork. Until you’ve completed a few sandwich lease option deals, you want to have the draft and completed paperwork reviewed by a competent attorney before signing it. I make at least four copies of each file. You need one set of two for you and the seller and a separate set for you and the end buyer. I prefer everyone have their own copies with original signatures.
By Wendy Patton
For more than 35 years, I've used the Sandwich Lease Options System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate and find profitable deals. It's because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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