Sandwich Lease Options: Your Complete Guide to Understanding Sandwich Lease Options. Wendy Patton
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1st month rent)
5.Rent of $1895
6.We also requested that the $2000 bonus offered by owner be paid to listing agent (that way the agent would have $4000 of his commission paid soon)
We had previously experienced problems taking too long to rent or rent-to-own a property, and had decided for this one to have a fallback plan, in case it was taking too long to market.
Our Lease Option plan to find a buyer was as follows:
1.Rent $1,995 (to move it fast)
2.Option fee of $10,000
3.Price : $379,000 for a 12 month term or $389,000 for an 18 month term
This should give us a profit of more than $35,000 and $45,000 for the 12 and 18 month periods, respectively.
To our surprise, along came someone offering us $2,295 for a straight 12 month lease. We accepted it because it increased our monthly cash flow to $400/month, and there was an uptrend in our real estate market. We believed that trend would continue over the next couple of years.
As the end of the current 12 month lease with tenant approaches, the market has experienced the tremendous appreciation as we expected. At this point, these are some of the alternatives we are considering:
Sell this property for at least $390,000 and realize more than $40,000 in profit. Comparables are already there to support the price.
Put it back on the market as a Lease Option with a price increase of some $40,000, providing a future $70,000 or more in profit.
Buy it early from the owner and hold it longer. Since we would be closing earlier, we may request some breaks from them.
Cleberto, Florida
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CHAPTER 3
Finding Motivated Sellers for Lease Options
Motivated sellers are out there in every city, every town, every state. Finding them isn’t as difficult as it might seem – if you know which techniques work for attracting the attention of a seller who wants to work with you on a lease option.
I recommend looking for motivated sellers who have nicer homes that require little or no work. This way you spend less time working on the house and less time working to find a good buyer. Also, I like to focus around the median price range and above. In my area, in Michigan, the median price range is currently $120,000 to $170,000 – therefore I have focused on the $100,000 to $200,000 range (so a little below and a little above on each side). These nicer homes are much easier to resell on lease with options, and generally much more profitable than less expensive homes. It’s also a lot more fun working on nicer homes for more profit than dumpy homes in rough areas for less profit – especially when you can buy the nice ones for little or no money down. So how do you find these?
What Makes a Motivated Seller?
There are, of course, different circumstances and situations in the lives of people that motivate them to need to sell their home. This can include job transfer, bankruptcy, foreclosure, upgrading to a bigger home -- any number of reasons. However, the circumstances of the sellers may also be affected by the state of the two vying markets – buyers and sellers – which also affect their motivations. For real estate investors it is crucial to buy homes from truly motivated sellers -- sellers who have an extra urgency, usually financial. You can’t get a good deal from a seller that is not motivated, because if they’re not motivated, they have no reason to negotiate or give on any part of a transaction.
There are different degrees of motivation and different reasons sellers need to sell their homes, but overall there are two basic categories of motivated sellers:
1.Desperate and Distressed (bad debt) – someone in trouble financially, behind on payments, going in a bad direction, short sale, lost their job, divorced, foreclosure, etc or
2.Stressed but not Distressed (good debt) – someone not in trouble financially, not behind on payments, but motivated for other reasons: possibility have two house payments, inherited a home, burned out landlord, job transfers, etc.
Most real estate investors only go after #1 above, but there is also huge profit potential with sellers that fall in #2. All of the lease option sellers should usually fall into #2, though that rule isn’t set in concrete. In this chapter we will discuss how to find motivated sellers of either type. The final factor likely to affect a seller’s level of motivation is the state of the economy itself.
What You Need to Know About Buyer and Seller Markets
The economy plays a big role in finding motivated sellers in different pockets of the country. The economy will be discussed in much more detail later in the book when we cover negotiations, but it is important to understand how it affects motivated sellers. Important definitions are as follows:
Buyer’s Market (weak market): when the real estate market is not moving very quickly. There tends to be little or no appreciation, or even depreciation. Sellers tend to be more open-minded to creative ways to sell their homes. There also tends to be higher unemployment in the surrounding area, and overall not a very good economy. NOTE: most markets are a buyer’s market right now in the U.S.
Seller’s Market (strong market): a real estate market that is moving very quickly. There tends to be high appreciation. Sellers may be getting multiple offers in one day on their homes, and bidding wars are common. There tends to be a high employment rate in the surrounding area, great retirement/vacation facilities, and an overall good economy.
When the market is very strong, sellers are able to sell their homes more easily, even if they are very distressed. If the market is a buyer’s market, it can be very difficult for a seller to sell their home. The odd part about motivation and finding motivated sellers is that no matter what the economy is, a buyer’s or seller’s market, motivated sellers are always available! You will just need to look harder or you might find fewer in a really strong seller’s market, and vice versa in a really strong buyer’s market.
Techniques for Finding Motivated Sellers
The kind of motivation you are looking for is not someone just wanting to sell their house but someone who needs to get rid of either their good debt or their bad debt. These sellers won’t come knocking on my door, however, nor are they ever obvious. You must try several different approaches and determine what works best in your area. It’s a bit like fishing. Try a spot and a lure and see if they work. If they don’t work, move to a different spot and try on new lure. Here are some ways that have worked for my students and me over the years:
1.Craigslist - Craigslist is my favorite way to find sellers. I like it for 2 reasons:
1)Everyone uses it now
2)It is FREE
I look in Craigslist for the “For Rent” properties. You can find homeowners in there who have not been able to sell and that is why they have decided to rent their home themselves. You will also find Real Estate agents trying to rent homes for their clients along with property managers (in most states they must also be licensed agents) advertising their homes for lease. See later in this section what to say to sellers when you do call them. Talking to Realtors is a little different and is covered later on in this book. Check out my bookstore on my site www.wendypatton.com to get your copy today.
2.Bandit signs – Bandit signs are the small signs you see on the street corners or on telephone poles around your city. They are called bandit signs because in many cities they are illegal to post and you can be fined, but investors still put them out and take the risk of the fine