A sandwich lease is where you would have a rent-to-own agreement with the seller. You would have a signed lease agreement and an option agreement. Then you would find another tenant buyer to sign another lease agreement an option agreement. The spread between your rental payments and what you owe the seller is what you keep.
Here is an example of a Kijiji Ad that I found in the GTA, where the investor is trying to use this strategy. They are positioning themselves as a large scale buyer. In order to entice a seller, into allowing the investor to leverage the strategy.
Let’s use an example. There is a property with a motivated seller in Oshawa for $200,000. The seller is willing to sign you up for a lease option agreement. Your monthly payments are $1500, this includes rent and option fee that you will pay the seller. You give the seller of $5000 initial option fee. You then market the property and find a tenant-buyer who is willing to rent to own the property from you $1800 per month and is willing to give you a $10,000 initial option fee. You make the $5000 difference between what you pay the seller and what the new tenant buyer pays you, as well as $300 per month which is the difference between what you pay the seller and what the tenant buyer pays you.
This all sounds well and good but there are many challenges to this. You have to be honest and open with both the seller and the tenant buyer. You need to convince a tenant-buyer that your own lease-option agreement will be sufficient for the seller to sell to you, and then you to them. Like most rent to own’s there is a large failure rate, so that needs to be kept in mind when you’re putting this type of deal together.
This strategy is something that is often marketed and sold as a great education course in material by large real estate investing groups. The reality is that this strategy is a very difficult to see through to the end. You have to ensure that the seller will sell you the property and will help you to reach the financing goals that you need to reach. And then you have to ensure that your tenant buyer is going to be able to close on the property. These multiple moving parts in the deal create a number of different failure points.