How to Use a Cooperative Lease Option

The cooperative lease option (wholesaling) is a version of the lease option that doesn’t get much attention. What’s great is that cooperative lease options pay you a decent amount of money much faster than a straight forward lease option or a sandwich lease option. Be it a draw back or not, the cooperative lease option doesn’t pay as much as the other two versions. But that’s the nature of wholesaling.

Cooperative lease options are a modified form of a sandwich lease options where the original investor leaves meat on the bone for another investor. This technique is better for beginning investors than for the more experienced investors. However, experienced investors needing to raise quick cash want to have this technique in their toolbox. It's an ultra-low cost way of getting started as a real estate investor but the profit margin is correspondingly low.

This version requires little or no operating capital. The most secure version is paying the lease option fee to gain control of an option that is contractually ‘assignable’ to a third party. As a wholesaler, once you establish a business relationship with a few wholesale buyers, you may trust them to pay you a ‘finder’s fee’ that doesn’t even involve you putting up the original option fee.

Getting Paid for Cooperative Lease Options

In most scenarios of the cooperative lease option, you are only paid once compared to being paid three times in the sandwich lease option. In the cooperative lease option, the way you get paid is by reassigning your lease option to another person and charging more for the reassignment than you paid for the original option fee.

This is faster and easier than a sandwich lease option. In the sandwich lease, you're in the middle of the deal until the end buyer makes the final purchase. In a cooperative lease option, you are in and out of the deal quickly. No need to manage the property until the purchase is made. As with most creative investment techniques, there are multiple ways of setting up the deal.

Cooperative Lease Options are About Flipping Lease Options

With cooperative lease options, one of the most common methods is that you take the lead in a sandwich lease. The original contract must specify that you can reassign the contract. Then, through your networking efforts with other investors, you find another investor that has an end buyer looking for a lease option. You have the house under a lease option agreement but another investor has the end buyer. You essentially flip the sandwich lease to the other investor who ultimately puts an end buyer in place.

It’s important to remember when doing a cooperative lease option NOT to find the buyer for the seller. It might sound like you are doing that and in essence you really are, but you can't describe it that way or explain it that way to your buyers and sellers. You are the buyer and you are "assigning" your contract to another buyer for a fee from them to buy your contract. For example, I usually take the buyers option fee as my assignment fee for a wholesale lease option. This can be anywhere from $2,500-$10,000 in my area of the country. Can you use an extra $5,000 this month?

Using a Cooperative Lease Option to Complete a Sandwich Lease Option

One of the best things about being a real estate investor is your ability to write contracts in many creative ways. A more profitable version of the cooperative lease option is for you to have the end buyer. You keep the contract in place between you and the end buyer until he or she is ready to make the final purchase. But maybe you aren't able to keep up your end of the sandwich lease purchase in the end. Who knows where your finances might be two years down the road?

You might have to bring in another investor to assign your lease option to and he or she makes the purchase from the original seller and then sells to the end buyer. In that scenario, you are able to collect the higher lease option fee from the other investor and the higher rent until the final purchase is made. What the cooperative lease option does is flip to the other investor the difference between your agreed to purchase price and what the end buyer is paying.

In the cooperative lease option (wholesaling) scenario, you only get paid in one way (the assignment of your option) but you get paid today. You don't make as much on the deal, but you are done with it. It is quicker and easier money then a sandwich lease option.