Real Estate Term of the Day – Sandwich Lease
A sandwich lease is a lease agreement in which a person rents a property from an agent who is leasing the property from the actual owner. This strategy is seen as a way for low-capital investors to gain access to real estate markets, as you can initiate a sandwich lease with no money down and without the involvement of a bank. However, there are some risks associated with sandwich leasing, and it can be very labor-intensive.
Investors looking for sandwich lease opportunities need to be good communicators and negotiators, because they will need to handle both the lease agreement with the property owner and the lease agreement with the renter. It is also not uncommon for the middle party investor to have to put sweat equity into the property they are leasing through maintenance and property management.
A reason that a property owner will agree to an arrangement like this in the first place is to gain payment towards their mortgage. They don’t have to deal with the legal logistics and management aspects of actually being a landlord, but they still get rental payments every month from the investor that go towards their property payments. The investor often charges more for rent then they are paying, so they can make a profit, but this doesn’t impact the property owner unless the renter that comes in does damage to the property in some way.