Negotiating the Deal for a Sandwich
A sandwich is a sandwich lease option or a sandwich land contract.
You’re acting as a middleman.
So here’s an example.
Let’s say the property is worth $100,000.
Market rent is $1,000 a month.
When you do the sandwich, you have to negotiate a sales price less than $100,000 and a market rent less than $1,000 a month.
- Let’s say that you negotiate a sales price of $92,000. (learn how we negotiate sales prices in our negotiating section)
- Let’s say you negotiate a market round of $900 a month.
- Let’s say the term of the lease is 36 months with the option to renew.
- Let’s say you pay an option fee to the seller of $10.
Now you need to find a tenant buyer that will pay more than that.
Tenant Buyer
You advertised rent to own
You find a tenant that wants the house.
- the tenant buyer will put 3% down as an option fee or $3,000.
- the tenant buyer will pay a sales price of $105,000 minus the $3,000 or $102,000.
- The lease is for 12 months with an option to renew. The rent amount is $1,050 if they pay the rent on the first or before the first, this is called a discounted rent, otherwise the rent is $1,100 a month if it’s after the first.
- At the end of the 12 months they can renew their lease and their option. I tell the tenant buyer that it’s in their best interest to by the house as soon as possible, because the rent will go up and there will be an additional option fee of $1,000.
As you can see you will profit three different ways:
1 the difference in the option fee of $10 versus $3,000
2 the difference in Market rent versus the rent you pay the seller (monthly profit)
3 the difference in the strike prices between the seller and the Tenant buyer, when the tenant buyer gets permanent financing.
There are pitfalls to learn how to avoid dealing with the seller on a lease option and the Tenant buyer on a lease option.
Read this website to learn the ins and outs of lease options.
