Good Memory… - Posted by JPiper
Posted by JPiper on May 30, 2000 at 09:23:44:
Good memory?.I?ve never done a sandwich lease. I do sell some properties with L/O.
There?s a variety of reasons I don?t do a sandwich?.the first of which is the numbers. In my particular market, the rent is a decent amount higher than an equivalent mortgage payment. So right out of the chute the sandwich lease starts to reduce the available cash flow.
Now complicate matters with the question of how you protect yourself in a sandwich lease. It can be done of course. I kind of compare it to ?co-habiting? versus marriage. You can implement a variety of things in a co-habitation situation that would start to mirror marriage?.but as you do, what you start to realize it might have been a whole lot simpler just to get married?.one document and most of the things are taken care of. In a sandwich lease, you can escrow documents, execute performance mortgages, etc etc?.but in real estate you can execute a single document (the deed) and many of the documents that might have been necessary under the sandwich lease are no longer necessary.
Where I like the lease/option as a buyer is for situations with little equity. But frankly I don?t want to own or expose myself to low equity situations from a risk standpoint. So when I have done lease/options I have assigned them.
I can create a similar situation to a sandwich lease without any of the risk characteristics. You assign the lease, and carry a note to create cash flow and a back end. Now the comparison isn?t perfect?.with the sandwich lease you may be able to get the house back, sell it again, etc etc. But then again, the risk characteristics are higher in a sandwich lease.
Now if I were in a different market, I might view it differently. In California as an example, rents are well under comparable mortgages. And so therefore, I think the opportunity there is to expand cash flow by NOT buying and doing sandwich leases. Different market.
In either case, a sandwich lease with a high payment as described by tarun, no cash flow, and very low upfront cash makes no sense at all to me to sandwich?..if this guy stops paying tarun?s cash is gone in two months.