I told you about options and lease options earlier.
Now it is time for sandwich options. The person who gave it this name was not feeling hungry at the time, there is a real justification for the name!
You are the filling of the sandwich. Either side of you is:
- The property owner
- The tenant buyer
I have described earlier how the property owner grants you an option to buy. But now I have introduced a new person to the party:
The tenant buyer
This is person who:
Rents the property off you AND
Buys the property off you at a later date.
In effect the tenant takes a lease option on the property from you.
Now I hope you can start to see how being the filling to the sandwich can be very lucrative. You simply have two lease options running in parallel with you in the middle collecting profit on every transaction.
Look at this example:
John, the property owner, grants you a lease option to buy his property at:
Price £150k
Period 10 years
Rent £500 per month
You then find a tenant buyer who wants to take a lease option on this property at:
Price £175k
Period 10 years
Rent £600 per month
Now I hope you can see the profit here. When prices rise beyond £175k the tenant will exercise the option, you will make £25k (£175k - £150k) and you will also would have made £100 per month (£600 - £500) during the time the tenant buyer was a tenant.
This is the simplest form of a sandwich option. There are many strategies of how options in their many forms can take properties off distressed sellers and create win-win situations.
I will go in to this in my later blogs.
Posted on: 28th Sep 2009
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