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Sandwich
Lease Options
Sandwich Lease Options
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Sandwich Lease Option- This concept is more advanced and typically more for investors, who may want to take on an unlimited amount of these properties. If you want to start off learning what is a lease option or learn the steps of how to do a lease option, you can read my articles.
Sandwich lease options are very similar to a lease with the option, but may include more additional features like the allowance of subletting the property in the terms of the lease. The investor is going to be in the middle of this transaction, that’s why it’s referred to as a “sandwich”. In other words the investor gets the property on a lease option from the landlord/seller at a certain price, and will likely lock in a competive price then turn around and do a lease option with a new tenant buyer for a higher price to make the spread in the middle. This would have to be agreed upon by the seller, and will take some more advanced methods to get it done. For example you will have to determine who pays for repairs, how expensive how small, etc. When it comes times to close on the loan it could require a simultaneous close (2 closings at one time) this will create a title seasoning issues with almost all lenders, so more advanced techniques may be needed. Such as talking to the title company, getting the lender on board, paying of the investor with an interest in the property and doing 1 closing. You could get even more advanced with land trusts and simo closes, but that’s too advanced for this article, maybe on another post. The investor will likely keep the option money from the new tenant buyer, and will likely deal with the tenant buyer. Discussions will need to be made on who the manager of the property will be and an investor may want to do their lease option in the name of their LLC or Corporation on the lease, as a form of asset protection. I started out with lease options by doing sandwhich lease options. I learned a lot from it and made mistakes along the way. My biggest concern with sandwich lease options these days as an investor is recording the memorandum of option and also how I will get paid at the closing table years later when the buyer has new financing, so talk to some lenders and title companies to see how this could work and be structured.
Can I do lease option / rent to owns with investment properties- You can do lease options with investment properties, I would recommend doing sandwich lease options, with your company on the lease, and never more than a 1 year lease, possibly 1 year renewing extensions. Your company on the lease will limit some liability, don't get into any long term leases like 3-5 years just in case. Also you are going to want to make sure your lease allows you to sublet the property and assign your option to someone else for a fee. In addition you'll want to spend some time with a title company to see how to best structure this, as years from now when you excersise your option because the tenant buyer is exercising it from you, you will need to know how to get paid on the transaction. It's not as easy as just telling the title company or seller I want to get paid, it's in my paperwork, you have to understand that it has to be listed a certain way on the HUD-1 settlement statement to satisfy the new buyers lender, this is where the title company could maybe give you some ideas based on experience, do research ahead of time, not every title company has heard of these types of transactions, many haven't. Title companies are going to tell you they can't do simocloses, they will say they aren't legal, that statement is kind of true, as they feel they are looking out for lenders and can't hide anything from lenders. There are other ways to structure these with land trusts, which I won't get into now, but also you may just find another way to get paid on the HUD-1 without doing a simultaneous close, talk to an attorney or title company.
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