Sandwich Lease Option

This is a relatively creative structure in the American real estate world, where the investor sits in the middle between the property owner and the future buyer.

Here’s how it works in simple terms:

Step 1

The investor signs a lease agreement with an option to purchase with the homeowner.

This means the investor rents the property but also receives the right to buy it in the future at a price agreed upon in advance.

Step 2

The investor then rents the same property to another tenant, but this time with a Lease Option — meaning a rental agreement that also includes an option for the tenant to purchase the property, but at a higher price.

In practice, this creates a “sandwich” of two contracts:

The first contract: between the homeowner and the investor.

The second contract: between the investor and the tenant, who receives the option to purchase the property.

How does the investor make money?

Option fee

Sometimes the tenant pays an upfront amount for the option to buy the property.

Rent spread

The rent paid by the tenant may be higher than the rent the investor pays to the homeowner.

Purchase price spread

The investor gets the option to buy at one price but sells the option to the tenant at a higher price.

Example:

The homeowner gives an option to buy for $200,000.

The investor gives the tenant an option to buy for $230,000.

If the tenant exercises the option, the investor buys the property for $200,000 and sells it for $230,000.

The profit comes from the price difference.

Not every lease agreement allows this type of structure. Sometimes explicit permission from the property owner is required, and there can also be legal risks if the structure is not drafted properly. For this reason, these types of deals are usually done with the help of a lawyer who is familiar with Lease Option contracts.

In the U.S. market, this structure is often used when the investor does not have financing to purchase the property immediately, but has the ability to find a future buyer.