What are your viewpoints on this SL/O strategy?
House listed for 120,000 and owner moved cause of job. Willing to sell the property for 110,000 in L/O. 4 bd 2 bath 2100 sq feet. Extremely motivated seller refinancing from VA to conv. loan to do a L/O.
I would RUN, not walk, RUN away from this deal. You are not going to make money buying a $120,000 house for $110,000. That is a horrible deal, expecially in a declining market.
I do lease options. I have bought many properties with lease options and I occassionally rent (you notice that I didn’t say “sell”) with lease options. However, I never do sandwich lease options. These are very risky and you can easily get into 2 simultaneous lawsuits using them, because you are out of control. The problem arises when your buyer wants to exercise his option and you attempt to exercise yours. Your seller changes his mind and refuses to sell. Your buyer sues you and you are forced to sue your seller! UGH! I don’t need that kind of grief!
Mike
The deal doesn’t have any meat on those bones for you to make a profit. With those numbers a sandwich lease isn’t practical. But you can approach it with a Cooperative Assignment and make the deal work.
And by the way, I can’t agree with Mike’s take on sandwich leases. I have never had those kinds of problems that he descibes. Like all deals, you do your due diligence, protect yourself with a good agreement, and you’ll be fine.
One technique to avoid the seller changing his mind, is to have the seller sign all necessary closing documents and escrow it with the title closing company or attorney; with instructions. This way, when you are ready to buy, they can’t say no. everthing is already signed, sealed and ready for delivery.
I don’t see why this deal is so horrific.
It could be good, if the seller is willing to let you rent it for very cheap price.
say FMR is 1000, if he lets you rent it for 800, you can rent it out to TBer for 1200 yay 400 positive cash flow.
see!! it could be good.
Totally agree with BFC. This could be a good one if the rent is low. Don’t forget to get automatic (at your option) renewals for several years so that you can ride out the current downturn in the market.
I’m an investor who specailizes in lease option purchases and I NEVER sandwich lease. If you have the know how, you can sell this property on a lease option purchase and not be sandwich’d between the seller and the buyer and still make a profit in the deal.
Another way to approach it is to negotiate down the price and pick it up on a land contract and then offer it to an end user on terms offering seller financing.
Best regards,
Daniel Durham
Then you aren’t much of a lease option specialist, are you?
I’ve done more than my share of sandwich lease deals, and have had minimal problems. Done correctly, they provide many of the benefits of homeownership without many of the hassles of being a landlord.
Good paperwork, due diligence, some know how, and you’ll be fine, tyfrank.
Actually AJ290… Yes I am, thank you very much… :biggrin
When you have the know how to lease option a house without having to be sandwich’d in and still make money on the deal… without any of the risk that can go wrong with being sandwich’d… I’d say it’s something one can specialize in extremely well.
I’ve done more of my fair share of unswandwich’d lease option leases and continue to be very successful at moving houses in this current real estate market. Perhaps if you put more effort into learning how that can be done and remove yourself from the risk’s involved with a sandwich lease you’d specialize in it as well.
Best regards,
Dan
P.S. Lovely website
You can do plenty of lease options without being sandwich’d however, sandwich leases have their place too. If you have done your homework, are comfortable with the risk, making enough bucks on the deal, etc. there is absolutely nothing wrong with a sandwich lease. No investment is risk free and there are factors to consider when deciding to sandwich or not to sandwich. Specializing in lease option purchases and proclaiming “…I NEVER sandwich lease.” is not the way I would go but, it is certainly a way to minimize your risk. Less risk usually equals less money. Such is investing. I like more money! I am not bothered by the calculated risks with sandwich leases nor am I against assigning the deal and moving on to the next. There is room for all who know.
Dino, PA Real Estate Licensed 20 Years
Dan, you better stop holding out on us. If you’ve got something good up your sleeve then say what it is, otherwise you’re just wasting everyone’s time.
I like cash flow which is why I do sandwiches. Yes I could (and have) assigned my interest for some quick no on-going risk cash, but you give up a lot of profit for that security.
If you’re getting cash flow from your “unsandwich” then I’d like to hear how you’re going about it.
Hi,
I’m a newbie and a bit confused. What’s the difference between the lease/option (lease/purchase) that I’m familiar with: getting a lease/option contract with the seller and lease and option contracts with a tenant/buyer…and a sandwiched lease/option?
Sandwich Lease Options are great -------until you have a problem. Then you can find yourself in the middle of a lawsuit. (or two)
What happens if the seller incurs a lien on the property? Or declares bankruptcy? Or is siezed for any of a number of reasons. If your buyer is paying in good faith all this time and ready to exercise his option – then all of a sudden you can’t deliver title – you are caught in a heck of a mess.
I saw a mess where the seller granted the investor middle man a L/O thinking she and her husband were going to buy another place, but suddenly she finds herself in a divorce and says she would have nowhere to go, so was keeping her house. Didn’t matter what she had signed. Oh yeah?, says the end buyer.
You can argue that the middle man investor could win in court. Yes after spending months and thousands of dollars. All this could have been avoided if the investor had gotten the property via Sub2.
I’ve heard the expression, “friends don’t let friends do sandwich lease options.” From my observations, I’m inclined to agree. There are just too many things that can go wrong. They usually don’t —but, man when they do…
Couldnt you protect yourself well enough through paper work and contingencies in a sandwhich lease option so you dont have to worry about getting sued?
Good Paperwork and Due Diligence are key, right AJ?
EVERY technique has pros and cons, if there was one technique that was perfect for every situation and 100% safe and secure, that’s the only thing anyone would do. The fact that there are investors doing so many different things proves that there is no one “right” way.
If you think you could find a buyer to agree to $130,000+, create positive cash flow on the deal, and pay very little for option consideration, you could make some nice money from the deal. I would make sure I hgad an escape clause so I could get out of the contract if I couldn’t find a buyer right away. I would also use a corporation to protect myself personally.
Jeff
You do know, don’t you, That if that has a VA loan, that it is assumable?
Only if the buyer qualifies. Most conforming loans are also assumable with qualification.
For all the pessimist in the forum worried about getting in sticky situations I have a tidbit of advice—get a good attorney and/or contract. Every what-if scenario I’ve read here could be prevented with a strong contract. “What happens if the seller incurs a lien on the property”, nothing, because you’re contract says he/she can’t do that, or there are consequences, and on and on.
wow…I just read every single post in this one topic of discussion… and I have learned SO much. HAHA! You guys are awesome. One question tho…