Two questions:

1. The buyer on the sandwich option will probably want to assign their interest in their lease option to the person to whom they gave their lease option. They won't want to do this until their person informs them that they want to expercise their option just in case their option falls through. Therefore, the first buyer won't actually remain as the buyer so he won't have to qualify for the loan.

2. The short answer is that they will be taxed as ordinary income. Hopefully you are working under a LLC. The income and expenses of the LLC will flow to your personal return.

1. No. Technically, you're buying the property 1st, using your end buyer's cash (called a "double" or "simultaneous close") to pay the seller's price. You own the house just long enough for you to sign it off to your end buyer. Any money left over (if you structured everything right) will be left for you. Title company writes you a check.

2. Double closed in your own name? Personal income.
Did it in a business name? Business income.

How a sandwicd lease option works, first you enter into a lease with the property owner, you agree to lease the property for three years,and you also agree to a selling price on the property at this time also. in this exsample we're going to use 80k price for the house. Now you find your tenant buyer, and sell the offer him the property 105k.The tenant puts down a 5k non-refundable down pmt then they start making pmts to you, lets say you leased the property from the owner at 850 month, your tenant buyer is leaseing the property from you for 1050 per month, plus the 5k dn, two years go by and the tenant wants to excerise there option to purchase the property, they go thur the mortgage broker, or bank and complete the note to buy the property, you pick up your check at the title company at closing. you big in the begining the middle cash flow of 200 and then when they close the difference between pay off with the first property seller and what you sold the property to the new buyer for minus the dn pmt of 5k so 20k, so you have 5k dn 20k profit from sale plus $9,600. for monthly cash flow thats $34,600. for putting the seller together with the buyer, and staying in the deal to the end, tax income comsult a tax professional, thats a sandwich lease option.

Your not buying the house you are leaseing it from the seller. Your tenant buyer is the one buying the house from you from the lease, or exercising their option to buy, you never own the house, your name will never appear on the deed at any time. You dont need any credit or money down to do this, every thing can be neoigotioned between you and the seller and the tenant buyer, what your doing is providing the seller another way to sell there property in a tough market.

Thank you!

You will not be doing a double closing in a L/O. You will be assigning your contract to the end buyer.

InvestDesMoines gives a very thorough explanation. You are in control of the property the whole time but it is never in your name so this is a perfect technique if you have no money and c#@p for credit.

Karen

I'm bringing an old thread back from the dead here, but I have another question:

If I find a seller to L/O me his home for, say, a $1,000 option payment, $800/mo, and a the option to buy the home for $160,000 within 3 years, and I explain my strategy to him, which is to lease the home out to a T/B for a $2,000, $950/mo, and a sales price of $185,000, why would he not just tell me to get lost because he can do the very same thing? I fail to see how I am bringing any value to the table in a sandwich lease option. Is it because he will receive a guaranteed payment from me whether my T/B pays me or not, and for not having to deal with a tenant himself?

First of all, your contracts should say that you will be assigning this property and will be making a profit. You do not have to tell the seller what your terms are with the T/B in a sandwich deal. I actually advise against it. As long as you are paying the pmt that was agreed upon between the two of you, he should be happy.

The value you are bringing is your expertise. Most people don't have a clue how to put together a deal like this. Most of the time you don't have to pay your seller an option fee if they are really motivated to move the house.

Another thing--you are not having to "deal with a tenant" per se either. When you do a L/O the T/B is responsible for all the repairs himself. Just set them up so that the rent pmt is automatically deducted from their acct and deposited into yours and do the same on your end and presto! It is simple!

Simple answer. I DON'T EXPLAIN TO HIM MY EXIT STRATEGY. I do make sure he is very happy with the terms of the L/O that are between him and me.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Thank you for the answers!

When you say I will be assigning the deal, how does that work, exactly? I understand assignments as far as wholesales go, but is it any different with lease options?