Sandwich L/O's -- Who should do the rehab? - Posted by Rick

Posted by Bud Branstetter on June 06, 2000 at 16:14:01:

The reason you could probably L/O them is because they are rentals that do need work. They may well not be the higher end house that you can depend on a good tenant that makes their payment. Legrand has learned as most of us others that when you go under the 75-80% of the average priced house you have more trouble. Not that it can not work, it just may be more problems.

Try to find out the underlying financing and learn to take that over subject to. You then control and feel that your investment is safer. The TB you put in there should be able to refi and pay you your profit and the original owner their deferred equity. I like to buy $3 for every $1 I spend. So in your case if you rehab you want to be sure there is 15-20K of equity.

Sandwich L/O’s – Who should do the rehab? - Posted by Rick

Posted by Rick on June 05, 2000 at 23:42:58:

Most of the prospective house purchases I look at each day would work out well as sandwich L/O’s. They currently have low equity but in a rapidly appreciating market like mine, can build a nice back end payoff the course of three to four years. The problem is that most of these properties are run down rental units which are in need of 5 to 7k worth of work to attract a tenant buyer. I’d rather not spend this kind of money on a property when all I actually have is an option agreement from the seller.

Ron Legrand says L/O’s are for pretty houses only (not fixer-uppers), others are finding a handyman tenant to do the work (sometimes this can be a real problem).

Does anyone have a successful system in place to accomplish these kinds of rehab and repairs while minimizing the initial cost (risk) to the investor?


Another suggestion… - Posted by George(OH)

Posted by George(OH) on June 06, 2000 at 06:53:14:

…is from Bronchick’s article “L/O a Junker”; where he talks about getting in a sandwich position on a house that needs repairs, then running an ad stating “$0 down, $XXX/month, U-Fix” (or something to that effect).

What you are doing is trying to attract buyers that have the fix-up skills to do the repairs in exchange for the downpayment. Be sure that the work is done BEFORE they move in. You should be able to get a nice spread in this situation, and they should be able to cash you out in a year or so.

I’m just a newbie, so PLEASE refer to the original article to verify this info.

Good luck,


Re: To rehab or not to rehab -that was the question! - Posted by Lori Samson

Posted by Lori Samson on June 06, 2000 at 24:06:56:

Rick, If there is a nice back end (I call it tail end) profit you should look at the numbers to see if its 20% or more under market and then I usually buy it. Borrow private money if you can and even borrow the repair money too. Do the rehab and sell it on a lease option (looooong term, you know the applicants that you know will need several years to get it together if at all) then, refinance with no cash out or with cash out if you can and you are building your long term passive income and assets. If they do refinance, so what! Go buy another house and go to the Bahammas for a week to mourn! HA Ha
If I don’t have a minimun of 20% equity in the deal then I always buy it lease option and it is usually a pretty house. You should never be looking at near market priced houses that need several thousand in repairs! If the seller won’t do them he better reduce the price to make it worth your while!You need to sit down and set where your presonnal buying/rehabbing/lease optioning deals need to be. Create your own formulas and standards. Lori

Re: To rehab or not to rehab -that was the question! - Posted by Rick

Posted by Rick on June 06, 2000 at 07:40:04:

Thanks for the advice Lori, et al. In my market, I could sandwich L/O lots of these houses – buying with low option fee, setting them up to pay $150-$200 in spread per month and waiting for a back end pay off of at least 15K + 2-3k option fee. The problem is – even if a I ask the seller to discount for the repairs, it takes two years to recapture 5-7k in repair costs. This is a long time to tie up my limited funds. Maybe your right, Lori, I should go for a deeper discount on the initial purchase, then refi. to recapture my investment and then find a tenant buyer. Thanks again guys – food for thought.