Selling Your Home and Renting It Back
Residential Sale Leaseback
|A win-win for seller and buyer / investor
I first blogged about selling your home and renting it back (residential sale leaseback), after the housing market crash in 2008, however since I am still getting inquiries (10 years later) I thought I would update and re-blog.
Following the housing and economic crisis in 2008, many homeowners were feeling “house rich and cash poor” due to declining household income, investment portfolios losing value and if mortgaged, mortgage payments becoming a struggle. Even with the loss in home values, many homeowners still had significant equity in their homes, however the only way to “cash out” was to sell their home and either buy a lower priced home, or rent. Many homeowners were facing the possibility of a mortgage foreclosure and losing all their built-up equity. And for many, selling the home they lived in for much of their life was difficult to do.
A solution for those wanting to cash out equity but still remain in their home was a residential sale-leaseback where they were able to sell to a family member or investor, then rent back from the new owner. The homeowner freed up cash to help weather the economic crises, while continuing to live in their home by making lease payments. The family member or investor looking for investment income had the benefit of a long term lease executed the same day the property is purchased. And with a tenant they knew would take good care of the property. A win-win for both seller and buyer/investor.
The mechanics are fairly straight-forward. The home is sold in the same manner as a typical sale of any other residential real estate. At closing, concurrent with the sale of the home, a mutually agreeable (previously negotiated) Residential Lease is entered into by both parties. The Residential lease terms and conditions are incorporated into the Purchase Agreement as a pre-condition to closing (i.e., execution of the Residential Lease). Care should be taken, particularly when involving family members, to make sure the transaction will be viewed as being “arms length” where the sale price and lease terms are based on fair market comparisons.
Also, be wary of sale rent-back schemes and selling to companies that prey on distressed homeowners. Best to work with a buyer or investor you know personally or can be checked out.
Unlike commercial and business use, where the sale-leaseback deal structure is fairly standard and often utilizes boilerplate agreements, residential sale-leasebacks are unique to each individual situation and need to be structured accordingly. The financial situation of the seller (excess equity after mortgage payoff, if any, other sources of income, etc.) will often impact buyer / investor perception of “risk” and impact the price the buyer or investor is willing to pay and the amount of the monthly lease payments (possibly above or below market). Of course, there is risk with any “renter” in making monthly lease payments, however in a sale-leaseback situation, where the buyer / investor is buying largely based on the seller wanting to rent back, the evaluation of risk will typically impact the negotiated selling price and monthly lease payments.
If you are a homeowner or potential investor that would like to discuss this further please call or email me. I am a licensed real estate broker in CA serving the La Quinta area, and AZ serving the Prescott area. Further information on listings and prior sales, and “about me” can be found at https://www.zillow.com/profile/Larry-E-Hansen/.
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