Lease Option a Lease Option...Sandwich?

[Brandon Sturgill]

I've personally never executed a sandwich lease option...thanks in advance for the input.

The story:

• Motivated landlord
• Asking $65k
• ARV $80k
• Renovation ? assume $0 to hold...property is in good condition
• 10-yr tenants @$770/mo. (tenants keep maintenance and pay all utilities)
• 1st & 2nd Liens ($650/mo. combined note payment...PITI)

Acquisition

• Lease Option (48 months)
• $60,000 option purchase price
• $3,000 Down (5%)
• $650/mo. PITI paid through third party debt servicer.
• $120/mo. to operating expenses/reserves- (not interested in cash flow- don't need it)

The play:

The current owner has indicated tenants want to purchase the property but have bad credit...but, they have $25k cash on hand...

Can I execute a lease option with the existing tenants while holding equitable title?

• Collect a $10,000 option fee (36 month option)
• $70,000 option price
• Monthly rent increase to $800/mo....contribute $30/mo. to purchase price to justify the rent increase.

Everything else remains constant

• $6,500 cash on the front end
• $10,000 on the back end if they exercise the option...if not, plan B...

Thoughts?

[Joe Villeneuve]

@Brandon Sturgill Just following up to see if what I wrote made sense.

Let me add a couple of things:

1 - There is actually a 3rd contract...the Purchase Agreement.

2 - If you want to give credit towards the purchase from the rent, there is a way to do it without tying the Lease and the Option together.  Here's how I do it.

 If you want to give $100 credit each month towards the purchase, instead of giving credit to the Purchase from the rent payment, just add up all the credits they would have gotten (if you were giving them monthly credits), and subtract that from the P.A. price...from the start.

So if you were selling the property at $100k, and wanted to give $100/month credits ($1200/year) over a 3 year period, just subtract $3600 (3 years of $100/month) from the $100k value, and sell the property to them for $96,400.  The end result is the same for them if whether they exercise their "Option" or not, but you're not tying the two agreements together.