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sandwich lease is a lease agreement
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where a real estate investor leases the
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property from an owner and then leases
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the same property to somebody else
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knowing the different lease types and
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how they work in real estate is
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essential for your real estate career so
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if you want to pass your real estate
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exam and start your career off right
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you're in the right place hello
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everybody it's Zach here from real
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estatelicensewizard.com today we're
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talking about sandwich leases let's get
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started so what is a sandwich lease well
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a sandwich lease is a rent agreement
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where a property owner rents their
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property to an investor who in turn
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rents that property to a tenant in a
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sandwich lease the investor is both the
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lease or or lessor and the least C the
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investor rents the property from the
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owner and is responsible for paying
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monthly rent however the investor does
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not live in the property themself they
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create a separate rental agreement with
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a tenant who live in the space and pay
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them monthly the investor acts as the
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landlord to the tenant so that the
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property owner has fewer
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responsibilities the investor pays one
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rent price but charges a higher fee to
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the tenant they then collect the
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difference between the two contracts and
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earn a profit now why is it called a
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sandwich lease well no matter how you
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slice it a sandwich lease is a great
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option for sellers renters and investors
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alike a sandwich lease earns its name
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because it requires three crucial
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ingredients one a property owner who is
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eager to sell to a tenant who is renting
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to own and then three a real estate
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investor to facilitate the deal in a
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sandwich lease the investor is the meat
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while the property owner and the Tenant
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are the slices of bread now what terms
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are specifically covered in a sandwich
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lease I'll throw them up on the screen
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for you right now but essentially they
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need to cover a wide variety of things
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obviously the name of the tenant the
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property description occupation limits
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security deposit fees and much more so
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let's do an example of a sandwich lease
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so let's imagine Carter is a homeowner
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having trouble selling his house he
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wants to move as soon as possible but
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isn't interested in leasing the home or
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taking on landlord responsibilities
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Emily an investor proposes a sandwich
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lease deal to Carter the agreement
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states that she will lease the home for
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three years with the option to buy at
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any point for three hundred thousand
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dollars Emily also agrees to pay a
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one-time option fee of three thousand
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dollars to start the agreement Carter
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signs the agreement and Emily begins
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making a monthly rental payment of
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fifteen hundred dollars Emily then
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initiates a deal with Bill a tenant who
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wants to buy Carter's home but cannot
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afford the down payment Bill signs a
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five-year rental lease with Emily paying
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two thousand dollars a month with an
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option to purchase for three hundred
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fifty thousand dollars at any time in
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three years Bill finally purchased the
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home and pays Emily that three thousand
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dollar option fee Carter then receives
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the full price for the property and
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Emily profits from the difference it's a
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win for all three parties now let's
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discuss some pros and cons of a sandwich
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lease and how it affects investors
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tenants and Property Owners so for Real
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Estate Investors a sandwich lease is an
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excellent way for investors to enter the
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real estate market and earn a profit
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investors willing to buy their time can
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make a decent amount of money from a
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sandwich lease in the long run one of
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the downsides for investors is that
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finding suitable properties with willing
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owners can be challenging another issue
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is that sandwich leases require a bit of
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haggling investors may be unable to
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lower the rent price enough to earn a
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profit even if the investor negotiates
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the right price it takes the entire
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lease term for them to see the fruits of
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their investment fully investors also
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have to worry about tenants backing out
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of the deal if a tenant exits the
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agreement the investor is still
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responsible for paying rent for the
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property in the end this could result in
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them losing money now for property
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owners sandwich lease options benefits
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Property Owners pretty significantly
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maybe they are eager to move but I have
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a hard time selling their house they can
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rent out their homes without assuming
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the responsibilities of a landlord at
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the end of the lease term the tenant
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usually buys the property so the owner
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no longer has to worry about finding a
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buyer however one disadvantage for the
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owner is that they usually have to offer
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lower rent to the investor if they were
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to lease the home themselves they would
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obviously earn more money but again that
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would include the responsibilities of
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being a landlord in this type of
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agreement they don't have to do that a
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sandwich lease benefits tenants who
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cannot afford a down payment or might
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have poor credit this type of lease
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gives the opportunity to move to a home
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and rent it until they can buy it
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tenants must watch out for rent to own
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scams or the lessor includes deceptive
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terms these scams are unfortunately
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common in Sandwich leasing tenants may
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also have to pay more for rent so that
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the investor can profit if a tenant
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decides not to buy the home at the end
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of the lease they also have to
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essentially lose their non-negotiable or
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non-refundable option fee so really it
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can be hit or miss for from the tenants
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active in terms of pros and cons so how
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does a real estate investor go upon
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setting up a sandwich lease first day
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the fund a motivated seller and then
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they have to find a candidate who's
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having trouble selling the property and
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they also don't want to be a landlord
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because the seller perhaps may be
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desperate they can agree to having that
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third party investor rent the property
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for a lower price secondly the real
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estate investor must find a tenant who
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wants to own a home but can't afford a
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down payment this tenant may be
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interested in a rent to own option that
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allows them to lease a property until
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they can purchase it finally the real
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estate investor must be willing to pay
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rent to the owner while acting as a
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landlord to the tenant so now obviously
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we get asked this all the time what's
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the difference between a sandwich lease
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and a sublease while many people use the
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term sandwich lease and sublease
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interchangeably there are actually some
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key differences for example a sub lease
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generally does not involve Real Estate
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Investors tenants May sublet an
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apartment if they are offered a job and
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let's say another state but cannot break
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their lease if the lease term allows it
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the tenant can find another tenant to
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sublease the apartment this will enable
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them to rent a new place out of state in
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that example earlier without paying for
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two leases a tenant who is subleasing
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their apartment must still pay the
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landlord for rent if payments are laid
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or missing it's their responsibility so
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obviously there's a significant
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difference between the two there's no
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investor involved in a sub lease or
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subleasing agreement so what do you need
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to know for the real estate exam about
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sandwich leases well a sandwich lease is
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an agreement where a property owner
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rents their space to an investor who
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then rents the space out to a tenant
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sandwich lease options benefit Real
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Estate Investors property owners and
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tenants because this type of lease is
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popular in real estate investing real
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estate professionals must understand how
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a sandwich lease works for more videos
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on leases lease types and all that good
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stuff click here and click here to
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subscribe thank you guys so much for
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watching until next time see ya bye
