Once you have a tenant in a sandwich lease you know they want to buy the property. For some investors, it can be easy to forget these are still tenants until the sandwich lease option to buy is completed. You have responsibilities to them as tenants and just as importantly, they have responsibilities to you and the property.

Getting Started Right with a New Sandwich Lease Tenant

Whether this is your 1st or 30th sandwich lease option deal, the tenant is going to follow your lead. Your responsibilities and their responsibilities need to be written in a signed contract. I'd even have a clause in it that allows new issues to be added if something unusual comes up that's not covered in the original contract.

With a sandwich lease option, this goes both ways. You not only have responsibilities to the tenants but also the seller on the other side of the sandwich lease.

Typically, you'll be tougher on the tenants than the sellers because the tenants are the most likely not to follow through on the sandwich lease option to buy. For instance, the tenant's contract in the sandwich lease option should require they do regular maintenance and repairs while they are still tenants. You need to have an inspection clause allowing you to look around the house on a regular basis to make sure it's being done.

They're not owners until they exercise their side of the sandwich lease. That limits the changes they can make to the house. Certainly, they can't tear out a wall and nether should they be painting over the neutral white paint. If you don't make this clear to them, you could have trouble. Sometimes tenants in a sandwich lease option are so positive they are going to buy in a few months or a year that they start treating it as if they own while they are still tenants.

In a sandwich lease, you're landlord to tenants until you get them to the closing table

The Goal of a Sandwich Lease is Getting the Tenant to the Closing Table

I'd say about half of all tenants follow through to the end of the sandwich lease option to make it to the closing table. Some have amazed me when they walk away from their option fee after only a few months. Don't try to figure it out because I doubt you will. However, that actually works in your favor when they do.

You want to learn quickly how responsible the tenants are in your sandwich lease option. If they walk away from their option fee after a few months, they were never going to be responsible enough to make it to the closing table. Good to learn that early because your big pay day is when they close the deal. Better to learn early they won't be doing it so you can move on to putting someone else on the tenant side of the sandwich lease. And collect another lease option fee for doing so.

You can encourage tenants to keep the deal moving forward by occasionally reminding them they are paying an above market rent that goes away as soon as they close the deal. You can also put them in touch with your network of real estate professionals. Especially a loan broker and credit repair specialist. You can do many things to help them move towards the closing table. But in the end you can't make them responsible people if they don't want to be.

Also, keep everyone else in the sandwich lease deal informed about what is going on. The seller in the sandwich lease option as well as any other realtors or others on your team.

Learning how to do a sandwich lease option to buy isn't difficult, especially when you work with an experienced coach or mentor. Another great way to get started learning how to do a sandwich lease is by picking up a copy of my bestseller book : Investing in Real Estate with Lease Options and Subject-to Deals, you'll quickly be on your way to success with a low / no cost real estate investing strategy. A strategy that starts by finding motivated sellers and excited buyers. You'll also find more information at www.facebook.com/WendyPatton. Best of luck in your quest to learn how to a sandwich lease option to buy.

I regularly receive questions about lease option contract purchases and respond to them here on the blog for the benefit of everyone interested in a lease option contract. If you have questions about the lease option contract process, please leave them in the comment box below.

Lease Option Contract Q&A

Q #1: I sent out postcards this week for sellers interested in a lease option contract and just got a response from a homeowner who seems to be the perfect candidate for a

lease option contract. She owns a condo town-home, which is my concern. Can a lease option contract work with condo owners?

A #1: Sure a lease option contract will work IF you are in an area where condos are a "cool" or a "good" thing to own. I live in the Michigan, and they are not the best here (but a few select areas), but in Chicago they are very hip. A lease option contract can work with a condo in the right areas. Consider though who will pay the home owner association fee - I would want the seller to remain responsible for this fee. 

Today's Marketplace is Ripe for the Lease Option Contract

Q#2: Single woman in a three bedroom, three floors town-home. Wants to go to live in Germany part time and stay with her son here in NJ the other months. She has a lower mortgage (has not told me exactly what yet) and is willing to rent, no problem, and pay for the monthly HOA. When I mentioned would she sell, she said yes! She did ask me what I charged to do this and I told her nothing through my lease option contract company. She asked how I make money then and I told her through the buyer. I also revealed I am a licensed Realtor and that I could charge commission.

The property was built 2003 and she bought it new.

The lady revealed that she has an appointment with a Realtor friend from the complex a few hours after my scheduled appointment with her on the weekend.

Please advise regarding the above. Thanks and I look forward to hearing from you.

A #2 What does the seller REALLY want to do? Sell out right or get some cash flow? The other important thing when dealing with any home owner that is considering a lease option contract with you and has suggested that they might list with a real estate agent is that you have them ask their Realtor to "Make YOUR NAME an exclusion to the listing contract". This is Realtor language to protect the seller and you from the additional fees that would be charged if this were not in their agreement with their agent. Write this down - as it is the exact language used by most real estate agents in the business. This way if they don't sell it and you buy it the owner is not responsible for commission. If they don't put this in there it will affect the seller's bottom line and therefore yours also.

Q #3: When you sign the contracts it is not exercising your lease option contract?

A #3: Yes, exercising an lease option contact is the same as purchasing the property

Q #4: I read that if you sell a home on a lease option contract and don't close before 3 years you loose the capitol gains exemption. If that happens, couldn't you close with the mortgage that you could afford and take a second? (making sure we are in full disclosure of the lending company of course).

A #4: Do sellers in your area have lots of capital gains now? If not, it's not an important thing for you to be worried about. Only when you know that have a huge gain. Not equity. Gain. 

Q #5: Is an Offer a cash out deal? I've only closed on 4 deals I don't know the difference between terms and offer. If I offer $3000 down and $1000 a month isn't that terms?

A #5: Terms are what goes in an offer. Like monthly payment,  lease option contract fee,  down payment, price. Etc, The offer is the sales contract signed with the terms included. 

Lease Option Contract Coaching -  Feel free to share this post, comment, or ask additional questions about any aspect of a lease option contract .   If you are considering lease option contract coaching, check out my Facebook page at www.facebook.com/WendyPatton or you can learn more about the lease option contract from my free book and video training.