Since mortgages are very hard to obtain and the inventory is at an all time high, many sellers opt to offer “rent to own” or “owner finance” properties, in the hope of a stabilization of the market or to secure a buyer with borderline credit, who is in the process of cleaning up his/her credit or build an employment history.
As an investor, who is looking to make some money fast and with limited risk, especially with very little to no cash available for investing, using the sandwich lease option strategy is a great way to make some money and at the same time establish relationships with other investors/buyers and lenders.
The way it works is simple:
- Locate some potential renters, especially want-to-be owner financing buyers. Just run an ad on Craigslist, local papers and look for “owner financing wanted” ads. Screen the potential renters for what type of house they are looking for, credit and employment situation (borderline prospects, who are looking to improve their current situation, are best.)
- Look for properties that meet the criteria of the potential renters: these properties are located through advertising. Don’t overlook “For Rent” signs on single family homes – many of these owners are willing to owner finance these houses, even if they don’t advertise so.
- Make an offer on the property and secure control of the paperwork. There should be a clause in the paperwork that authorizes the investor to sublease the property with owner approval, meaning that the owner might want to double check the credentials of the tenant occupying the property.
- If the house price to you is $100,000 5 year lease, $1,000 per month, 20% toward downpayment, write the offer for the tenant as a 2 to 4 year lease option with 5% per year. This is where you make your money. In 2 years the property would sell for $110,250, and $121,550 in four years. Also make sure that the option money that the renter pays to you as at least $2,000 over what you have to pay to the owner, so you can make some money upfront.
One last tip: try to show the house to the prospective renters/buyers at the same time to create a sense of urgency. Competition will drive a faster offer and more option money.
Laura Al-Amery is a real estate investor and consultant with over 20 years experience in several aspects of the real estate business. She has practiced real estate in Hawaii and Missouri, and presently lives in St Louis. She has hosted real estate seminars in St Louis for over 10 years, in real estate subjects like creative financing, building wealth with multi family buildings and short sales.
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