Thread: Double Lease Options Question

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I have signed an option to by a house from a seller, and also created and signed a 3 year lease.

I AM IMMEDIATELY (WITH SELLER'S KNOWLEDGE) subleasing the house as a rent to buy with another party. The other party (subtenant) will sign a lease and AN OPTION TO BUY THE PROPERTY FROM ME.

It's a creative financing technique where I lease and option property, the immediately sublease property and offer another option to subleasee (with exercise price higher than my exercise price under first option).

Any info would be welcome, and much thanks.
Alan

That is the term used most often. Sandwich, not double. Back to Back Leases with Options to Purchase are common in Commercial.

Here is what is common:
The Players
1. Owner - Seller - Landlord
2. REI - Real Estate Investor
3. Tenant Buyer - Renter - Final Lessee - Optionor

In a VIBRANT lending climate, with many NON-CONFORMING lenders helping a lower FICO score tenant buyer convert a lease option deal to a 30 yr fixed note, Sandwiches make some good sense.

In a CONSTRICTIVE lending climate, there is LITTLE ABILITY to be able to FORECAST what is possible for the Tenant Buyer as far as Home Loan financing.

These Sandwich Deals work well with solid employment and stable REO - Short Sale levels. The higher the instability, the more the lenders will NOT give marginal people a chance.

That being said, the MECHANICS of sandwiches are:

A. From Owner to REI
- Lease purchase agreement (one agreement)
- Memorandum of lease purchase (recorded at the court house against the property to protect the REI - "clouding the title)
This arrangement is not a lease option, something to get of down the is buying the property.
- If you have 2 agreements, a Lease and an Option to Purchase, with the OWNER, you have no real committment to buy the property. You have a CHOICE to buy.

B. From Tenant Buyer to REI
- Lease
- Option to Purchase
- Full Disclosure you have rights to lease and to sub-lease
- restrictions on recording the option and selling - assigning the option

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With the Sandwich to work you as the REI need:
- the right to assign the contract (sell it)
- the right to sublease the property
- clear communication who the owner is and what the owner has allowed the REI to do with his her property.

The challenges of the REI and OWNERS with Sandwiches are:
- Owners currently have personal friends that are in financial trouble, and Owners doubt you as the REI ALWAYS have the ability to get a reliable tenant buyer who will ALWAYS PAY on time and ALWAYS PAY for unexpected bills like REPAIRS and MAINTENANCE.

Do you as a REI want to:
GUARANTEE the performance of the tenant buyer? In PAYING on time? The FULL amount and on time?

My advice is to be cautious with Sandwiches.

Tell the Owner:

- I will use BEST EFFORTS to help you with the Tenant Buyer paying on time, BUT I can not gurantee the payments.
- I will communicate with you in a timely fashion. You as the owner deserves to know EVERYTHING about the property, even when there are problems.
- Even if the Tenant Buyer has to move out, I will at my own costs and expenese clean the house and re-lease it. This will be communicated to you in person by me.
- I have a financial interest in the Tenant Buyer buying the house. So I will jump on any and all problems.

There are other ways of making money, such as the Cooperative Assignment.
- You lease option as a principal from owner
- You find a Tenant Buyer
- You assign the deal and get a fee of 3% to 5%
- You are out of the deal

You can do Wraps and Land Contracts with COOP ASSIGNMENT too.

I hope this helps anyone who reads this.

Brian Gibbons of REISkills

Your explanation was clear, in depth, and provided much needed insight.
Many thanks.
Alan