John and Mary want to buy a house but find out from their realtor Bob and their mortgage broker Jane that they don’t qualify.
John and Mary aren’t happy because they can’t get a house. If Bob and Jane don’t get them a home or mortgage, Bob and Jane don’t get paid.
Your job is to network with realtors and mortgage brokers so that they call you when they have people who can’t qualify to buy. Realtors and mortgage brokers want to get paid, and they won’t make money from people who can’t qualify. You can solve this problem for all parties with a lease option.
So when you get a call from the mortgage broker with a potential client (John and Mary) who can’t quite qualify, you ask the mortgage broker how long it will take them to qualify. It should be between one and four years. Then if you have the money and credit to buy the house, you can have the tenant buyers (John and Mary) go with their realtor Bob to find a home that fits everyone’s criteria. If you don’t have the money or credit, you will get a joint venture investor to bring the down payment.
In either case, you get a good tenant (John and Mary) who will be a tenant-buyer in your property. They will pay premium rent and will take care of maintenance and repairs via the lease option contract. They will have at least 3% of the property value for the deposit called (NROC).
The monthly rental amount will cover your principal, interest, taxes, and insurance payment, giving you monthly cash flow. You will buy the property at today’s price. Then, when your tenant-buyer exercises the option, you will sell it to them for the property’s current value, which should give you a profit on the difference.
If you use your own money and credit, you will get a great return on your investment. Suppose you bring a joint venture partner to the deal. In that case, you will split the profit with them. They should get a double-digit return on their investment without ever talking to a tenant or fixing a toilet. The investor’s money is secured by real estate, which should minimize their risk. If you use none of your own money or credit, any profit you make will be an infinite return for you.
Sandwich Lease Option:
On a sandwich lease option, you are doing two lease options on one property. You are lease optioning from the current owner and then lease optioning to a new tenant-buyer. Why doesn’t the current owner do a lease option with the new tenant-buyer? The answer is very few people are educated in lease options, so this means minimal competition for you.
The process is you have a tired landlord, for instance, who doesn’t want to be a landlord. It could be any other issue as well. You tell the landlord you will make the monthly rent payments and take care of the maintenance and repairs. You determine a price you will pay in the future for the property. You then lease option to a tenant-buyer for a little more monthly rent and sell the property to them at a little higher price than your contract price with the current owner. You have them take care of the maintenance and repairs. You pay a small deposit to the current owner and get 3% or more from the new tenant-buyer, so you have multiple profit centers.
Sandwich lease options are controlling property without ever owning it. They are one of the least understood but most profitable real estate strategies.