What is a Sandwich Lease?
A sandwich lease (also called a sandwich lease option) is a creative real estate strategy where an investor positions themselves between a property owner and an end tenant. The investor leases the property from the owner (the master lease) and simultaneously subleases it to a tenant-buyer under a lease-option agreement at a higher price and higher monthly payment.
How it works
The investor negotiates a lease option with a property owner — typically someone motivated to rent but who would prefer to sell eventually. The lease option gives the investor the right to buy at a set price within 2-5 years. The investor then markets the property to tenant-buyers, collecting a non-refundable option fee and monthly rent that exceeds what the investor pays the owner.
Example scenario
Owner lease: $1,400/month, option to buy at $195,000
Tenant-buyer lease: $1,700/month, option to buy at $215,000, $7,000 option fee
Monthly spread: $300
If tenant exercises option: $7,000 (option fee) + $10,800 (3 years spread) + $20,000 (price difference) = $37,800 total profit
The investor risks nothing on the purchase side (no down payment, no mortgage) and profits from three sources: the option fee, the monthly spread, and the difference between the two option prices.
Legal and ethical considerations
Sandwich leases are legal in most states but must be structured carefully. The original lease must allow subletting. The investor should disclose their position to all parties. Some states require a real estate license for this activity. The investor carries risk: if the tenant-buyer stops paying, the investor is still obligated to pay the owner.
When it works best
The strategy works best when the owner wants passive income and an eventual sale, the property is in good condition (avoiding maintenance costs), and the market has a strong pool of tenant-buyers who need time to qualify for a mortgage.