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Sandwich Lease: What It Means and How It Works

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Updated August 06, 2023

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What Is a Sandwich Lease?

A sandwich lease is a lease agreement in which a party leases a property from an agent who is, in turn, leasing the property from the owner.

Key Takeaways

The term "sandwich lease" is derived from an agent acting as both a lessor and a lessee of a property.
Investors who look to be sandwich lease agents can find themselves in risky situations with substantial financial costs.
Those with low borrowing costs and substantial leasing networks can find sandwich leasing to be very profitable.
For owners, a sandwich lease is an option when they are not under financial pressure to sell, assuming they have no interest in operating the property as a lessor themselves.
The agent on sandwich leases can often profit on both the ongoing lease, as well as the sale of the property once completed.

How a Sandwich Lease Works

A sandwich lease refers to a situation in which one party leases a property from an owner, and subsequently leases that property to another party. A sandwich lease is seen by some as an advantageous strategy for low-capital 澳洲幸运5官方开奖结果体彩网:investors to gain a foothold in real estate mark𒅌ets, as it is possible for an investor to initiate a sandwich lease with no money down, and without the involvement of a bank.

This strategy, however, can be a risky and labor-intensive undertaking. For prospective investors who do need bank financing, it may be worth looking into the best mortgage lenders in a g🔴iꦆven area.

Investors looking for sandwich lease opportunities need to be savvy communicators and negotiators, first to identify and establish a lease agreement with a property owner, and second to identify and establish an agreement with a lessee of their own. In addition to the investment of time required to make sandwich lease profitable, it is not uncommon for the middle party to also put 澳洲幸运5官方开奖结果体彩网:sweat equity into theꦺ property through maintenance and property management labor.

Important

A sandwich💖 lease is a lease in which the lessor (landlord) of a property is also a lessee—leasing the property from the initial o🐬wner.

Sandwich Lease Example

Alice, a homeowner, is having trouble selling a house she no longer lives in because of a slowdown in the real estate market in the neighborhood. Alice is under no financial pressure to sell this house and is not interested in renting ꧂it out and acting as a landlord.

Brynnꦦe proposes a sandwich lease deal to Alice, offering to lease the home for five years with the op🐠tion to purchase the home at any point during that lease at a defined price of $200,000.

Alice agrees to the deal, which requires Brynne to pay $1,000 per month in rent. A portion of this monthly rent, $200, will be applied to the final purchase price if ꩵBr𝄹ynne decides to purchase. Additionally, Brynne agrees to pay a one-time option fee of $2,500 to initiate the agreement, which will also be applied to Brynne’s purchase price later on.

Brynne, in turn, establishes a lease agreement with Carl, who moves into the home. Carl is ꧒also interested in leasing to own this house, and so his five-year lease agreement bears some similar characteristics to Brynne’s. Carl, however, leases the house for $1,500 per month with the option to buy the house for $250,000 any time before the five-year period ends.

Similar to Brynne’s agreement, $200 of Carl’s monthly rent is applicable to the later purchase price. He also pays an option fee of $3,000, which can be applied to his purchase price if and when he chooses to purchase. When Carl finally purchases the home after five years, Alice makes her full 𝔉price on the property, and Brynne profits on the difference.

What Is a Sandwich Lease Purchase Option?

A sandwich lease purchase option gives the initial lessee (the person in the middle of the sandwich lease) the option to purchase the home or property at a certain price within a certain time pওeriod. This allows motivated sellers to find a potential buyer while still earning a rental income until the option is exercised.

What's the Difference Between a Sandwich Lease and a Sublease?

A sandwich lease is similar to a subleasing agreement, in that both involve one party leasing a property and then re-leasing it to another party. But there are some key differences: in a sublease agreement, the initial tenant is simply assigning part of꧑ their interest and responsibilities in the lease to another tenant, usually because they will not be present for part of the lease duration. A sandwich option is primarily aimed at real estate investors, with the end goal of ultimately selling the property.

What Is a Master Lease Agreement?

A master lease agreement is a leasing agreement that gives the lessor the right to sublease the property or part of the property during the agreement. For example, a person might lease a house, and s𓂃ublease different rooms or apartments in that house to different sub-tenants.

The Bottom Line

A sandwich lease is a leasing agreement that allows a person or company to lease a property from the owner, and then lease the same property to another tenant. This arrangement can be attractive to some real estate investors as a relatively low-risk way to earn rental income from a certain property.

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