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Jackie and/or fellow members:
I could use some assistance with structuring a Sandwich Lease Option. I have a deal here in Nashville that I am very close to getting done, but there are a couple of sticking points that I need to work out.
ARV: $405,000
Market Rent: $2300Seller Motivation: Purchased property in March and does not have equity. Being transferred from Tennessee to California due to work so is having to rent property.
Offers:
OPTION 1 – Sandwich Lease Option
We will be your tenant-buyer, and we will sub-lease the house to one of our pre-qualified tenants. We will stay in the middle for the entire term, pay the rent every month even if the house is vacant, and be responsible for all the regular maintenance and repairs under $500.
• Sales Price: $385,000.00
• Down Payment: $2,000.00 (Non-Refundable)
• Monthly Payment: $1,950.00
• Term: 60 Months
• Monthly Credit: $0.00
• Total Monthly Payments for 60 Months: $117,000.00
• Total Monthly Credits: $0.00
• Balance at End of 60 Months: $383,000.00
• Total Payments Received: $502,000.00OPTION 2 – Lease Option Assignment
If Option #1 doesn’t work for you, we will assign our Lease Option to one of our pre-qualified tenant-buyers.
• Sales Price: $405,000.00
• Down Payment: $1000.00 (Non-Refundable)
• Monthly Payment: $2,295.00
• Term: 36 Months
• Monthly Credit: $0.00
• Total Monthly Payments for 36 Months: $82,620.00
• Total Monthly Credits: $0.00
• Balance at End of 36 Months: $404,000.00
• Total Payments Received: $487,620.00Option 3 – Master Lease Agreement (No Option to Buy)
We will lease your property for 1 year with the right to sub-lease to a qualified tenant. We will stay in the middle for the entire term, pay rent every month even if the house is vacant, and be responsible for all maintenance and repairs under $250.
• Monthly Rental Payment: $1950
• Security Deposit: $1950 (Refundable)
• Term: 12 months with option to renewThe seller would like to do a deal based on Option #1, but wants to receive a monthly rental rate of $2350 in order to cover his entire monthly mortgage. At that rental rate, if I add in my $300 profit then I will have to charge my Tenant-Buyer a rental rate that is above market. I was thinking that it may be possible to get a higher rental rate since we are providing an option to buy and the home is a new build in a nice neighborhood.
Would anyone do this deal and try to get an above market rental rate from the Tenant-Buyer?
Are there any other ways to structure this deal that could be a Win-Win?
What other terms would you ask for if you agreed to pay the higher rental rate?
Any assistance would be greatly appreciated. Thanks.
Garrett Humphrey
Looks like a potential opportunity!
But, don’t make his problem your problem. You can ‘LOSE HIM LESS” by paying him $1950 per month in rent but you cannot cover his entire mortgage payment. I would not guarantee the rent at that price. I’d only pay rent when, and if, you receive rent. You should only be responsible for repairs up to $50. You should never to so anxious to do a deal, that you back yourself in to a corner with a risky situation. Risky would be getting stuck with a $1950 per month payment on a vacant house!
Plan B, get an option on the property, then sell with seller financing that wraps the under lying loan. You’d sell to the person with the highest down payment. You get the down payment ( or split part with owner). You may be able to squeeze some cash flow out of the difference between the monthly payments the buyer pays you and what you need to pay for the mortgage payment. Put a 3 or 4 year balloon on the note so you and the seller are cashed out. You may be able to get a payment up front, monthly cash flow and a payment when it is cashed out. The benefits to you and the seller – You’d have no repair costs and the entire mortgage payment would be covered.
Thanks Jackie!
Since I did offer those terms in the beginning, if I did bump the rental rate up just a little I could then renegotiate the terms that I already offered.
For example, ” I will give you $2000 per month rent, but I will only pay rent if I receive rent and lower the repair threshold to $50.”
I was also going to use the following contingencies:
*This agreement will only become effective if I secure a resident for the property on or before ______________, 2019
*Should tenant default on any payments required by this contract, all of the tenants rights to occupancy or possession shall revert to the landlord and all monies paid to the landlord shall be retained as consideration for the execution of this contract and as agreed liquidated damages in full settlement of any claims for damages.
Do you think these would cover my risks? Are there any additional contingencies that you would use?
Garret
what does the guy owe on his mortgage? what are the monthly payments? Is it a fixed interest rate loan? When did the loan originate?
These are all things you need to know
Remember, with master leasing, you do not need to get an Option. But you do need to know about the underlying loan.
As for contingencies, I’d definitely include a buy out clause.
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