Wendy Patton – Selling on Lease Options
As I say time and again, sandwich lease options are all about a win-win-win for everyone – the seller, the buyer, and you as the investor. But make no mistake about it; you are in this to make a profit! As we know very well, there are three paydays.
- The sandwich lease option fee in the beginning.
- The rent spread that you collect each month until the sale closes.
- Your portion of the final sale price.
Almost always, the biggest profit in the financial transaction comes in payday 3 (at the end of the deal) when a bank approves a 30-year mortgage for the purchase price (less the down payment). The mortgage amount typically ranges from $100K to several hundred thousand dollars. There’s a lot of money involved, so you really want to get this part perfect. That’s why the course materials include a Profitability Worksheet covering all three of the paydays, along with all the forms, contracts, instructions, guides, and other materials you need to complete every step of the sandwich lease option transaction.
The course materials cover both a sandwich lease option and if you are selling a house on a lease option that you already own!
Calculating What Goes Into Your Profit
The Profitability Worksheet is very simple and fully automated to make the calculations you need based on the data you provide for your specific sandwich lease option. It’s color-coded for you to put your information into the green spaces and the completed calculations appear in the blue spaces.
Use the automated profitability worksheet to run your own examples. This enables you to determine which deals are value-added to get into, as well as how to best structure individual deals.
It begins with the basics that include the current market value of the house and the option sale price that you agree to with the seller (remember, you’re not paying the option price until all of the mortgage money is on the closing table). The market and option sale prices are used to calculate the purchase option fee you’ll charge the tenant/buyer. You can run any option fee scenario that you want to – such as 3%, 5%, or 10% of the tenant/buyer’s purchase price. The profitability worksheet also calculates the estimated future appreciation based on the number of months in the lease.
The data is used to calculate the suggested sales price for the tenant/buyer.
Another portion of the sandwich lease option profitability worksheet calculates how the monthly rent money flows to you and the seller. By running different scenarios, you’ll learn your potential cash flow from the rent spread. There is also a section on rent credits if you decide to use these. It includes both rent credits the seller gives to you and rent credits you might give to the tenant/buyer (not recommended). Yet another section of the worksheet enables you to analyze different ways the option fee might be applied – such as part of it going to a real estate agent. Everything you have learned about creative financing using sandwich lease options is in the worksheet.
Of course, there is a line showing your total potential profit from the deal and what will be paid to the seller.
The example for an $80,000 house shows your profit at $29,710 and $21,600 in rent paid to the seller.
But that is just a typical example. Your bottom line depends on your local market and the specific house that you put on a sandwich lease option.
Everything Else Comes with the Course
The checklist becomes your guide throughout the process of selling on a lease option. It covers everything from advertising for a buyer to what to do if the tenant only makes a partial rent payment during the option period. It’s all backed up with fill-in-the-blank forms and contracts that have been approved by an attorney.
The forms can be used in all states but as with any real estate contract, you should have these reviewed by a real estate attorney in your state. The instructions are so detailed that they include how to take the master forms and contracts that come with the course and turn them into your own master forms (I covered this in a previous blog about the cooperative lease option).
The details are in the paperwork. For instance, a standard rental application is not appropriate for a sandwich lease option. After all, you’re looking for a tenant/buyer that can qualify for a mortgage in a few months. You need to know more about the person’s work and income history in addition to the standard landlord references.
As another example, a sample letter for the tenant/buyer to begin credit repair is included. This is truly a detailed course. As you already know, the tenant/buyer becomes responsible for the maintenance of the house they will be purchasing. A sample letter reminding them about the required maintenance is included.
More sandwich lease option materials included:
- Criteria for lease option applicants.
- Option to purchase agreement.
- Property inventory.
- Tenant/buyer ledger.
- Letter for late tenant payment.
- Much more.
Of course, we don’t live in a perfect world. It is possible for something to go wrong even with a well-thought-out and well-executed sandwich lease option. There are materials for these scenarios too. There’s a sample letter explaining that you’ll be showing the house to other prospective buyers if the current tenant is not paying as required. There’s even a letter for denying an applicant when they just don’t qualify for a sandwich lease option.
Everything you need to be successful is here. There are advertising scripts and telephone scripts for qualifying a buyer before you meet them or go to the trouble of showing the house.
It all starts with the Profitability Worksheet that you use to run multiple scenarios before placing a house on a sandwich lease option and before filling in the blanks on the easy to use forms and contracts.
Now is your time to immediately take wealth-building action:
- Cooperative Lease Options.
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Add Personalized Coaching.
- Expand to Get the Deed “Subject To.”
- Round it all out by Working with Realtors.
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