Sandwich Lease Options are an Entrepreneurial Strategy
Becoming an entrepreneur is all about bringing a new and creative insight to the market. Sandwich lease options are very different from the tired old “buy and hold” or “buy and flip” strategies that all of the competition is using. Those strategies are as old as high-risk Wall Street is. Every Wall Street financial advisor tells every client to “buy and hold” for the long term. People who think they are financial geniuses boldly go out on their own as Wall Street “Day Traders” using the “buy and flip” strategy.
The vast majority of real estate investors use those same tired and high-risk Wall Street strategies. The big financial institutions love this because the buy and hold strategy means the banks can sell you a 30-year mortgage. Mortgages do have a place in the economy if you want to become a homeowner. But the main goal of the big financial institutions is locking people into making payments for the rest of their lives. The buy and flip strategy isn’t much different because you’re locked into plowing money into the rehab until someone buys you out.
The Word “OPTION” is the most important part of a Sandwich Lease Option.
Here’s Why Sandwich Lease Options are an Entrepreneurial Strategy
Sandwich lease options give you control with the “option” to get out if the deal won’t work out for you. You remove the risk and make more money working outside the box when buying real estate with lease options… I’ve been a real
estate investor for several decades… I’ve studied and worked with many investing methods… I’ve had success with various methods. Today, I still don’t hesitate for a second to state that buying real estate with lease options is the fastest, easiest, and least expensive way of investing in real estate. And highly profitable!
Know when the deal just isn’t going to work.
Rarely do I spend much time putting effort into a sandwich lease option that won’t make everyone happy. But in full honesty, I do start quite a few telephone conversations that take a minute or two before I have a reasonable expectation that a deal will work. In those two minutes, I also screen out deals that will not work – it’s all in using the right script.
Early in your conversation with the seller, you need to understand the seller’s current financing situation. This is something a bit unique to sandwich lease options. A situation that you might discover early in the conversation is that market rents won’t cover the seller’s monthly mortgage payment. Deals like these are difficult or impossible to make work as a win-win-win. For instance, the seller might have a $1,600 a month mortgage payment but market rents for the neighborhood only average $1,200 a month. This can happen when the seller is in a bad mortgage arrangement. You might be able to make this work if the seller can cover a $400 a month negative cash flow but that’s not a good situation for you or the seller. Don’t waste your time when the deal just doesn’t make sense. What you can do is suggest the seller look into refinancing the mortgage and get back to you when the deal will work. You might even have a few refinancing resources to suggest. But the bottom line is for you not to spend too much time on a deal that just won’t be good for everyone involved.
Control without owning gives entrepreneurs the flexibility to make the best decisions.
Millennials are Redefining Suburbia
Sandwich lease options are about much more than only having the option to avoid questionable deals. When you control but don’t own, you have the flexibility to quickly change as the market changes. It has only been a short 18 months or so ago when many experts predicted the trend for Millennials was remaining in the city core where everything was within walking distance. But now these “kids” are having kids of their own and seeing the value of a white-picket-fence – as long as there is a coffee shop on the corner.
It’s a new suburbia as defined by the Millennials.
Millennials are recreating suburbia with their own vision. Some people are calling it “Hipsturbia” but the tag “hipster” seems a bit old for this new generation redefining what has been left to them by the baby boomers. Whatever it’s called, this is the market that flexible sandwich lease option investors should be trending towards. The millennials that moved from the suburbs into the city and are now making a round trip back to their home roots. But they are bringing parts of the urban experience back with them. Fortunately, it’s very easy to see what it is that they want in their version of suburbia. Number one is affordability that includes a lifestyle of walking to dining, shopping, entertainment, and jobs. All were identified in the Emerging Trends in Real Estate® report released by Urban Land Institute and PwC. That is a niche that sandwich lease investors are uniquely positioned to jump into right away.
Niche investing is about becoming an expert in an area where there are very few competitors but where buyers willingly pay top dollar for the benefit of what the expert offers.
Selling “Rent to Own Properties” to millennials in today’s market is a powerful niche!
Rent to Own Properties is a Perfect Fit for the Millennial Niche
What you have today are tens of millions of millennials living in city apartments where rents are increasing even faster than homeowner equity. They have good jobs but very little savings and haven’t qualified for a mortgage. They no longer want to pay high rents to landlords, which means the landlord strategy is not appealing. And the few single-family homes on the traditional market are being scooped up by the scarce millennials who do qualify for a mortgage.
Sandwich lease options are all about “white-picket-fence” homes!
Into the picture steps the “rent to own properties” niche expert with a solution to all their problems. Solutions these millennials are willing to pay top dollar for. You can help millennials get them into a single-family home out in the suburbs. For the cost of a rental deposit on a bigger apartment, you collect the option fee on a lease with an option to purchase. This works both towards the down payment they need and converts into the homeowner equity they want, as soon as they complete the purchase. You offer them a way to improve their credit score to qualify for a mortgage. And millennials can move in today to a white-picket-fence-home to raise their family. Having all the right solutions is highly profitable for a niche expert.
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