The sandwich lease option does put you in the deal as a landlord but not in the traditional way. After all, you don’t own the property and you want that to work in your favor – while also profiting as a landlord. How to be a landlord with a sandwich lease option is much less risky than being the property owner.
I do encourage you to learn the profitable basics of being a landlord that I’ve previously written about in, “How To Be A Landlord – Advanced Tips.” But here, I explain in detail about the advantages of being a landlord in a sandwich lease option arrangement.
Learning How To Be a Landlord The Right Way
Real estate professionals know that renting has been and remains a strong profit stream for investors. Today’s real estate market mix is ideal for sandwich lease options for two key reasons. 1. Many (even most) first time homebuyers want to buy but are priced out of the market – meaning they are renters. 2. These same first time buyers are looking for alternative ways to make their first home purchase – the sandwich lease option is their best alternative.
As a real estate investor, you want to make these market dynamics work for you and the people you are doing business with. Learning how to be a landlord using a sandwich lease option is the answer to both of these dynamics. Sandwich lease options are also the strategy for your low risk, low cost, entry into real estate investing.
Always remember that a sandwich lease option is exactly that – AN OPTION. In the absolutely worst case scenario – if the deal completely falls apart – you are not the owner. You always have the option to walk away from the deal. But also, remember that a sandwich lease option always has three profit streams:
- The option fee
- The ongoing rent
- The purchase profit
If you want to learn more about how to profit from all three profit streams, check out the blog “Control Without Ownership Using Lease Options.” Here I’ll shed more light on the rent profit.
How To Be A Landlord Collecting Steady Rent
Traditional landlords have three big fears (risks) that sandwich lease option landlords avoid or at least minimize. 1. A vacant rental when the landlord has a mortgage to pay is a big fear. 2. Maintenance and repairs are big costs for traditional landlords. 3. Property damage is the third big cost and fear that traditional landlords face. This is where it gets really good because these are NOT fears and costs for sandwich lease option landlords.
As a sandwich lease option landlord, you don’t have a mortgage on the property so there is no long term risk. However, you should plan in advance in case of a vacancy. The good news is you have rent paying tenants with the ultimate goal of buying the home. These are not renters who are likely to leave you. They are also highly motivated to pay the rent on time because any credit to their down payment requires on time rent. Timely rent payments also affect their credit score. Everything is working in your favor as a sandwich lease option landlord. In the worst case, if a renter moves out, they forfeit the lease option fee and you collect a new option fee from the next tenant/buyer. The worst case scenario isn’t even risky.
How to be a landlord in a sandwich lease option is almost always free of maintenance and repair costs. Either the tenant/buyer or the owner bears these risks and costs. The tenant is motivated to complete the purchase by being required to be mostly responsible for maintenance and repairs. If a major cost is involved, it becomes the responsibility of the owner or the owner’s insurance company. As a sandwich lease option investor, you have no risk or cost for maintenance and repairs.
Finally, there is the third traditional landlord fear and risk of property damage. This is similar to the risk for maintenance and repairs. But the risk is extremely low anyway. Tenants planning to become owners don’t damage their future home. But since you are not the owner, you are still not at risk if something strange happens. You want to write your contract with the owner correctly so that in a sandwich lease option you aren’t at risk for property damage.
A Sandwich Lease Option Landlord Gets a Nice Slice of Rental Pie
One thing I always point out is that the rent isn’t the biggest piece of the sandwich lease option pie. There is more money in the end sale and there can be more money in the option fee than in the rent profit (but not always). Still, your rent profit isn’t anything to ignore. The ongoing rent pays you a profit stream between when you collect the option fee and when you collect the big payday when the purchase is completed.
With the sandwich lease option, you are paying rent to the owner. Your rent profit is the difference between what you pay the owner and what you collect from the tenant/buyer. As an investor, you maximize the difference between the two. You have the tools to find motivated sellers who are happy to begin receiving rent on their vacant house. The owner is mostly concerned with collecting enough rent to cover the monthly mortgage. That’s what you offer the owner in this win-win-win arrangement. You often don’t even have to offer the owner full market rent. On the other hand, you want the tenant/buyer to have skin in the game. Rent-to-own buyers pay above market rents and the difference between the two is your ongoing rent profit.
A $200 monthly difference in the rents is more than reasonable and $300 is easily within reach (but there are variables such as the value of the house). At a $200 profit per month, you’ll collect $4,400 along with the option fee and the final purchase profit. A $300 difference in the rent means you’ll collect $6,600 at almost no risk and no cost.
How to be a landlord using sandwich lease options is a tremendous investment strategy for you that creates a win for everyone involved but doesn’t come with the risks and costs of being a traditional landlord.
By Wendy Patton
For more than 35 years, I’ve used the Sandwich Lease Option 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 to 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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