The effective and safest way in buying a house is through outright cash payment. The limitations with method, however, is that most ordinary buyer is not really in its proper financial situation to get into an agreement like this. It is a common observation that majority of the buyers can modestly afford a down payment. As an alternative, they are forced to secure what was left of the price of their purchase through mortgage from a lending institution.

Buyers, however, should observe some precautions and should not use up their entire savings just to pay a huge down payment amount. Exhausting all your savings for huge payments may lead to deprivation of reserves if in case any fall back happens or income will go down in the future.

What are options?

An option as used in the business of real estate investment is defined as a person’s right to purchase a property for a specified amount on a certain period. The option owner has the right to sell his or her option to interested buyers. The option buyer, on the other hand, then hopes that the value of the investment property will either go down or up. The seller of an option will receive a premium called option consideration.

The option buyer also has the right to buy the property or sell it to another buyer or investor which he or she can exercise. This buying arrangement is usually done to gain control over the property without the need to invest a lot of cash. Option premiums are usually non-refundable. Options represent equitable interest and are recorded by the county recorder.

What is a lease option?

A lease option as commonly in the real estate investment industry is comprised of two main parts namely an option and a lease or rental agreement. This is usually written in either one or two contracts. As the common practice, a rental agreement occurring between the potential lessee or tenant and the owner is implied as a lease.

It is expected that leases hold the lessee responsible for paying the maintenance, upkeep, insurance and taxes of the property. Typically, lease payments fall between five to fifteen percent higher than the rent of the property. So that the lessee enjoys tax benefits, this lease type is structured as if the lessee is the owner himself.

What is sandwich lease option?

The sandwich lease option is another type of branch of creative real estate investing but is not, at any way, an option. This arrangement is just created by tenants who wish to exit his or her unit as the tenant not having exit options written by the landlord in their lease.

For the purpose of providing mitigation option (a common practiced of reducing costs and risks) the buyer finds a tenant to replace the unit. The replacement tenant now becomes the tenant of the existing tenant (which could be the buyer himself) and not the tenant of the landlord. The original tenant will now have the right to create whatever rent, policy and deposit systems that he or she wishes to imply on the new replacement tenant.

Let’s explain further the scenario above understand the process in sandwich lease option. The moment the new replacing tenant observes any need for maintenance or has noticed problems with the unit, he or she will contact the original tenant how is now considered as his or her landlord who will then contact the real, legal owner/landlord in for repairs and maintenances to be done.

With this kind of creative real estate investing, the replacement tenant is in obligation to give the payments to the temporary landlord who will then be responsible to make the rent payment to the original unit owner or landlord. This arrangement is accepted as legal as long as payments are made