The Sublease Option Strategy Requires the Lessee to Become a Landlord

The standard sublease-option strategy being pushed today involves leasing a property and then subleasing it to a tenant-buyer. This requires the lessee (tenant) to become a lessor (landlord) responsible for managing the tenant-buyer. A sublease is also known as a sandwich lease, which is generally defined as: "A lease agreement in which the lessee (tenant) becomes a lessor (landlord) by subleasing the property under lease to a sublessee (tenant) who takes possession of the property." Under a typical sublease-option arrangement, an investor signs a lease-option agreement with a property owner and then subleases the property to a third party, known as a tenant-buyer, by using a sublease-option agreement. It is sort of the real estate equivalent of a threesome, in which the following three parties are involved in two separate lease-option transactions:

1. Lessor-optionor: The owner of the property being lease-optioned.

2. Lessee-optionee: The party leasing the property from the owner with an option to buy.

3. Tenant-buyer: The party subleasing the property from the lessee-optionee with an option to buy.

The problem with this scenario is that 99 percent of all investors who get involved in a sublease-option transaction do not know diddly squat about being a residential landlord. As a result, whenever they have any type of problem with a tenant-buyer, they are clueless about the correct way to solve it. For example, I recently received an e-mail from a lessee-optionee in Atlanta, Georgia, who wanted to know how to go about evicting a tenant-buyer in Georgia. I told her to log on to the state of Georgia web site and look up the residential tenant and landlord act online. The point that I am making here is that this person had never even bothered to take the time to acquire the most basic knowledge about being a residential landlord in Georgia, even though residential rental housing is one of the most highly regulated businesses in America. In most cases, this ignorance of basic property management fundamentals turns out to be a recipe for financial disaster.

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Financial End Game

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