Do Sandwhich Options Really Work?
I went to a real estate seminar recently. One of the speakers talked about sandwhich options (securing a purchase option from a motivated seller) and then bringing a hungy tenant buyer (lease option) into the property. Does this really work? What are the pitfalls to watch out for???
Jon
Everything works. Sometimes. If you can put all the parts together. The trick is to keep the deal as simple as possible and still get it done. Every additional complexity makes it a little harder to do the deal, makes an additional place for things to fall apart.
Stop trying to structure deals before you've talked to sellers. Understand what they need/want to get the deal done first. Then you can worry about a structure that makes that happen.
John:
They recently did a survey and found out that only 50% of lease options actually make it to the closing table.
Here are the benefits:
-You can sell the property for future value on a lease option and make a big payday down the line.
-You can take advantage of possible cash-flow by increasing the actual rent
on the lease option vs. the actual monthly payment.
Here are the downfalls:
-The new tenants you are doing a lease option to stop paying rent!
-The new tenants destroy the house!
-The new tenants move out a year or two later and buy another house.
I would suggest you get at least $5k non-refundable option money and check out their credit. You only want to do this with someone who can qualify for a loan down the line. What I do is have my lender pre-qualify them and if he thinks they can qualify for a loan in a year, then I do the deal with them. I would also recommend checking their references.
Lease options are a good thing and you can make a lot of money. One tactic I employ is buying "Pretty Houses" at 80% of market value with an ARM mortgage on it. Then I lease option it at 10% above market value for one year with a non-refundable down payment. The advantages are the positive monthly cash-flow, not having to do any repairs and the big payday a year later. If they dont purchase the property in a year, you either give them another year to perform and require another down payment or have them move-out and find someone else to lease option to.
Best Riches,
Jeffrey Adam
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