Real Estate Investing with the ‘Sandwich Link’

Published November 20, 2018 by Real Estate Leads

If anyone who’s recently embarked on a career in real estate thinks that the industry is exclusively in the purchase and sale of residential properties, that notion will be quickly dispelled. They’ll come to learn that it’s a multi-faceted industry with many different approaches people can take to what is essentially investing in land for any number of purposes. Yes, the most common purpose is to provide a home for a family, but there’s also providing land for a business and a whole host of other interests.

Investing in property with the interest of making profit is another, and here at Real Estate Leads our online real estate lead generation system is proven effective for connecting you with prospective clients with all sorts of different prerogatives when it comes to purchasing real estate. It comes highly recommended from a whole host or realtors who’ve already gotten on board, and of course being realtor with extensive knowledge of every aspect of the industry makes you look much more like the authority these clients will be looking for

Today we’ll be discussing sandwich link real estate investing, which is a less common approach that’s very effective and something you can advise your clients on if you feel it will benefit them. What it is exactly is a recipe for rental property investing with little or no cash of their own.

This strategy involves using lease purchases to acquire a rental property, and then placing a tenant in it using lease options. There will be 3 parties involved here, and – done right – sandwich lease investing can benefit all three of them. Let’s take a look at who’s involved here:

A. The Frustrated Seller

Typically you’ll have a seller who’s having difficulty selling a property through standard avenues, or must sell quickly to move and take a job. This individual is a great candidate for this particular investment strategy. Your client provides them with a way to get out of the home without needing to pay other payments. They get to move on with their life, while your client takes over their house payments.

B. A Rent-to-Buy Tenant

Some people want to own their home, but they are hampered by credit problems, a lack of a down payment ability, or both. Your clients offer them a lease purchase on the home, and they are able to rent it until their credit has been repaired and they’ve been able to save up their down payment.

C. Your Client, The Investor

By identifying distressed sellers and helping them to move, and also helping people who want to buy and get into a home, it’s a service you’re providing to both. And – perhaps more to your interest – there is the ability to have your clients profit nicely here. Let’s now look at the steps in the sandwich lease process:

Step 1
The first step is locating a seller who needs to move quickly, and they are in possession of a home with a low enough payment that allows it to be rented out each month – this should equate to a positive cash flow. Your clients execute a lease purchase with them, giving the 3rd party the option to buy the home at some date in the future, and typically 3 to 5 years away at an agreed-upon price. Your client assumes their payments, and then also pays them an option premium to help them to move. This number will of course vary based on the established value of the property.

Step 2
Now you as the realtor begin marketing the property to rent-to-own buyers, and show photos of the home to those who express genuine interest in buying it. You execute a lease purchase agreement with them for the same period as the one with the seller. The rent-to-own buyer now has the option to buy the home on or before that date, without being explicitly obligated to do so. You must charge them an option premium at specific $ amount, and that’s of course because your client will be into this deal with no cash out of pocket. The would-be eventual buyer will like this, as it promises to amount to a lot less than a down payment.

Step 3
With this agreement the monthly lease payment is set at a higher number than the payment your client is making on the home. This equates to your clients’ monthly cash flow. The price at which they will allow the leasing buyer to buy the home is going to be higher than the one you’ve agreed to with the seller. That’s the appeal right there, and it has a lot of appeal to be sure.

Your client now has a profitable monthly rental, and at the end of the lease there is the promise of the sale of the home to the leaser while they’ve made cash flow profit along the way. Yes, it is possible that the tenant doesn’t buy, but if so your clients can renew their deal with the seller and place another tenant in the home or simply walk away.

Sandwich leasing won’t be a good fit for every market or every investor, but it is a fairly reliable way to generate strong cash flows for those who are in a position to use it appropriately.