Most of us have home ownership as one of our major goals - hoping to provide a secure environment for ourselves and our families. For what seems like forever, we have been conditioned to believe that the process for achieving this goal involves a major lending institution, usually a bank.
If we are able to tick all of their boxes (including proof of a steady job and a hefty deposit), the banks may decide to lend us money, on which they will charge us interest for the next 30 or so years.
However, each time interest rates are cut by the Reserve Bank, and the banks fail to pass on the full amount of the cut to their home loan customers, we are reminded that their loyalties lie with their investors, rather than their banking customers.
Should we wish to purchase an investment property the barriers they put before us can seem insurmountable. But there are strategies - ethical, legal, and proven strategies - that can be used to buy property, and by-pass the money hungry banks.
One property investment strategy that is employed without any bank involvement is known as -sandwich leasing'. Although not widely promoted - certainly not by the banks - sandwich leasing has been used in business for decades. As the name suggests, the concept involves the creation of two lease options, with the investor becoming the -transaction engineer' in the middle.
The players in a sandwich lease are:
1. The property seller, who enters into a lease option with the investor. The investor agrees to buy the property at an agreed price in an agreed time, and pay -rent payments' to the owner until that time arrives.
2. The investor, who then sells the house to a buyer on a new lease option - at a higher price than they paid, and with higher weekly or monthly rent payments.
3. The buyer, who agrees to purchase the property from the investor at agreed time, and pays rent in the meantime.
In challenging economic times, sandwich leases provide solutions for buyers and sellers, and profits for investors.
For sellers who cannot sell their property, but who want relief from home loan repayments, entering into a sandwich lease will cover their repayments and give them a definite sale price and date.
Buyers, notably those who the banks might refuse a home loan (like the self employed, or those without a substantial deposit) are able to commit to the purchase of a property at a specific date, for a definite price, live in it, and make manageable payments to the investor.
The investor, potentially you, will make a profit 3 ways, upfront (the deposit provided by the new buyer) regular weekly profit (the difference between what you pay the seller, and the amount the buyer pays you), along with a profit at the end of the transaction, again the difference between the price paid to the seller and received from the buyer.
Because the buyer is intending to become the legal owner of the property, it's hardly surprising that in these transactions, the homes are well looked after, reducing the cost of maintenance and repairs.
Sandwich leases have become very popular with property investors, because of the 3 profit components in each property transaction and the investor can control and profit from property without investing any of their own money.
Australian property investor, Rick Otton, has been using lease options for decades and, over the last decade, has coached others in best practices for successful transactions. He is author of the newly published book 'Buy A House For A Dollar".
By Rick Otton
For more information see: How To Buy a House For $1
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