How To Sell & Leaseback Your Home

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How To Sell & Leaseback Your Home

What if you need to sell your home before you can buy a new one? What if you found the perfect buyer, but your new home isn’t ready? What if you don’t want to pull your kids out of school mid-year? What if you need to cash-in on your equity but you can’t qualify for a home loan? What if you’d like to have the power and advantage of making cash offers on your next house? That’s a ton of “what ifs” and there’s many more, but the fact is that no matter your situation, you have options, and your likely best option is doing what’s known as a rent-back agreement, aka a lease-back transaction, which is where a buyer allows a seller to maintain occupancy of a home after it’s been sold. Read on to learn how leaseback agreements work and to see if they are the perfect fit or worst fit for you.

What’s in it for you

  1. What a sale leaseback means in real estate.
  2. Post-closing occupancy risks and benefits for buyers and sellers.
  3. Scenarios where it makes sense to sell and leaseback your home.

What Is A Leaseback Agreement In Real Estate?

Residential real estate leaseback agreements allow homeowners to sell their house, get the cash from the sale, and to continue living in the home in exchange for making rental payments. At Good Vibes Homebuyers, this type of arrangement is known as our sell and stay perk, but other real estate professionals commonly refer to it as a “post-settlement occupancy agreement”, a “rent back arrangement”, or a “sell and stay program”.

Common terms in home-sale leaseback agreements

Standard contracts to sell and lease a home back from a buyer often include the following provisions:

  1. Rent rate: Leaseback contracts will specify the rent rate that the former home owner will pay to the buyer on a monthly basis. They should also provide a per day rental rate.
  2. Security deposit: Home-sale rent back agreements will cover the amount of the security deposit, what it can be used for, how it will be refunded, and a deadline for refunding it to the seller/renter.
  3. Term of occupancy: Sell and stay in your home contracts will contain a provision that clearly denotes how long a seller/renter may occupy a house post-closing. They may also include an option to extend the rent-back period and can even spell out any rewards or penalties owed for moving early.
  4. Utilities responsibility: All leaseback arrangements will clearly specify whether it’s the buyer or seller who is responsible for paying utilities.
  5. Maintenance obligations: Home ownership requires paying for more than the mortgage and taxes. Should the dishwasher break, for example, who will pay for its repair? Who will cut the grass and trim the trees? Rent-back contracts should state who pays for repairs and who is responsible for routine maintenance.  
  6. Pet policy: Agreements to extend a stay after selling a home should note if pets are allowed, if certain breeds are prohibited, and if a deposit per pet is required.

What Are The Risks Of Sale-Leasebacks?

If not having to move after selling your home sounds like a good idea, or if buying a home and immediately having it rented is appealing, then you’re probably wondering about the risks of sell-leaseback agreements. Before deciding if it’s a good idea for you, consider these common issues.

Seller leaseback risks

The issue with leaseback agreements for sellers deals mostly around coming to terms with becoming a tenant in your own home. Nonetheless, there are other risks that could come into play.

  1. Higher monthly payment: Monthly rent payments through a seller-leaseback can sometimes be higher than what you, as the seller, are paying each month on your mortgage. However, if your mortgage payment includes escrow for paying property taxes and insurance, the monthly rent rate will likely be close to what you’re already paying. Also, if you have pets, the buyer might require a non-refundable pet-deposit or even a monthly per-pet fee.
  2. Zero equity growth: Real estate values historically increase so when you sell and leaseback your home, one downside is that you’re no longer the beneficiary of rising property values. Similarly, instead of paying down principal with each mortgage payment, you’re now paying rent (which is likely used to pay down the principal for someone else). 
  3. Control of property: As a homeowner, you can make home improvements and changes to better serve your needs. You can also use a home however you see fit, for instance, as a bed and breakfast or VRBO. Once you sell but stay as a renter through a leaseback agreement, the new owner/buyer can prevent you from making changes and from using the property how you once were as the owner.

Buyer leaseback risks

The risks of being a buyer in a leaseback agreement are few, but could include:

  1. Being a landlord: Real estate is often thought of as a passive investment, but according to Will Rugeley, Marketing Manager at Good Vibes Homebuyers, this couldn’t be further from the truth. Landlords are regularly involved in day-to-day operations like preparing leases, (hopefully) collecting rent, and possibly even having to evict tenants. Buyers in leaseback arrangements may never have wanted these risky responsibilities.
  2. Rent doesn’t cover payments: Buyers often presume that if the rent is higher than the mortgage payment, they’ll break even or that they could even make a profit. The fact is other costs are involved when owning rental property, for instance, insurance, property taxes, and home repairs. When accounted for, most buyers in leaseback agreements run the risk of losing money every month.
  3. Complexity: Being a buyer in a leaseback agreement can require that you juggle multiple schedules. For instance, timing the sale of your current home with the tenant/seller’s move out date or a contractor’s schedule if you want to make improvements before moving in. The bottom line is, leasing a home back to a seller can have many moving parts and just 1 missed deadline can result in buyers waiting weeks or even months longer than anticipated.

What Are The Benefits Of Rent-Back Agreements?

If you’re thinking about selling and would prefer not having to move on closing day, then finding a home buyer open to doing a rent back agreement could be the perfect arrangement for you. The ability to extend your stay, however, is not the only benefit of rent-back agreements, and below we highlight its other advantages.

Seller rent-back benefits

Seller rent-back agreements can have distinct advantages for both parties. However, they’re not suited for all situations, so before deciding if a rent-back is ideal for you, sellers should consider their unique circumstances in the context of the below benefits.

  1. Extra time: Time is often considered the 1 thing on Earth that you cannot buy. But with rent-back agreements, sellers are afforded the benefit of having more time that can then be used to find their next house - at the right price, for the right terms, in the perfect location.
  2. Fewer moves: Rentback agreements can be a good idea because they allow a seller/tenant to avoid moving to temporary housing, only to once again move when their permanent residence becomes available, and from having to pay to place their belongings in storage.
  3. Become a cash buyer: Agreeing to a rent-back benefits sellers because they receive 100% of the sale proceeds at closing which could allow them to then make cash offers on their next home. As the old adage goes, cash is king in real estate!
  4. Financial hardship: If you can no longer afford your home or are struggling to make ends meet, rentback agreements can free up cash to cover expenses while also buying sellers time to find more affordable options.
  5. No new debt: Sellers with equity in a home have no means to cash in without refinancing, doing a home equity loan, or selling. The first 2 options require adding new debt, which affects your credit, but selling and leasing a home back allows sellers to convert their equity into profit without moving and without taking on more debt.
  6. No double mortgages: If you’ve found the perfect home for you, it’s probably also the perfect home for someone else. If you don’t want to miss out and you’ve not sold your current home, you could get stuck paying 2 mortgages without taking advantage of a home rentback program.
  7. 100% gains: Options to get at your home’s equity come at a cost. For instance, refinancing will incur origination fees, closing costs, and are limited to typically 80% of a home’s value. 1 big advantage to seller rent-back arrangements is that buyers like Good Vibes Homebuyers will cover all seller expenses and most importantly, will pay sellers for 100% of a home’s equity.
  8. Worry with heirs: Rent-backs benefit homeowners turned tenants when they don’t want to relinquish assets to their heirs or when they don’t want to the leave their heirs with the financial burdens of homeownership.
  9. Housing market protection: If you’re worried about a housing market downturn, seller rent back arrangements allow homeowners to sell at the market peak and to then shop for a new home after the market has begun to cool.

Buyer rent-back benefits

If you want to get the best deal on your new home, are ok with pushing back your move in, and are open to being a landlord, then you’re a potential suitor for a rent-back agreement which can benefit buyers in several ways.

  1. More attractive offer: The best deals get done when both parties are motivated, so if a seller can’t quite yet move, a buyer offering to let them stay in the home will often tip the scales in the buyer’s direction.
  2. Someone else pays debt: Monthly rental income from a seller/tenant can be used to pay for the mortgage, property taxes, and home insurance. Even better, with each rental payment the tenant is paying down a little principal and you’re also likely benefiting from monthly home price appreciation.
  3. No vacancy: Vacancy is a major financial burden. In fact, vacant units are one of the biggest expenses of owning real estate, so when buyers agree to a seller’s post-closing occupancy, it benefits a buyer’s bottom line and relieves the tremendous burden of finding a tenant.

Scenarios For Selling And Renting Back Your Home

Instead of explaining how to sell and rent back a house, it’s most useful to provide examples. Below are recent real-life situations of homeowners who have sold their home and leased it back from Good Vibes Homebuyers by using our sell and stay perk.

Sell and leaseback your home due to unforeseen expenses

Seller Steve recently had major surgery and his health insurance found every reason in the book to not pay. He decided to fight his insurance company, but during the interim, he was on the hook for paying all medical bills. He looked into refinancing, but quickly learned that he didn’t have enough equity, so he contacted Good Vibes Homebuyers (GVH). Seller Steve and GVH agreed to the following: GVH bought the home at market value price with the existing mortgage remaining in-place and Seller Steve received cash for 100% of his equity. He rented-back the house for 360-days with a renewal option, and GVH gave him an option to buy back the house within 3-years at a pre-closing-agreed price.

Sell and rentback your home due to foreclosure

Seller Sara owned her home for years and had been making the mortgage payment like clockwork. As the economy shifted into a recession, however, Seller Sara got laid off causing her to miss months of mortgage payments. As the bank ramped up the foreclosure process, Seller Sara realized that she was in jeopardy of losing all her equity, which was roughly $100,000. Luckily, she was able to find a new job close to home, so she didn’t want to move, but she also didn’t have enough cash to pay the mortgage arrears. Around this time, her friend told her about local investors who buy and rentback homes due to foreclosure, so she contacted GVH. Seller Sara and GVH agreed to the following: GVH bought her home through its sell your mortgage max solution, GVH made all back payments, Seller Sara received $70,000 cash, she enjoyed a 6-month rent-free period equaling $9,000, and she rented back the house for another 6-months. In so doing, Seller Sara avoided the hassle and expense of moving and put more than ¾ of her equity into her hands instead of the banks.

Sell and leaseback your home due to lending standards

Despite having been offered his dream job in a new city, Seller Sam was in a pickle! His credit wasn’t great and lending standards were tight. As such, multiple banks declined to approve him for a new mortgage until his debt-to-income ratio improved, and the fastest way for that to happen was by selling his house. If he did sell, he had no place to move. Seller Sam thought he had no options until he searched Google for “companies that buy and leaseback homes”. Seller Sam and GVH agreed to the following: GVH bought the home all-cash, Seller Sam’s mortgage was paid off, and he leased back his house for 180-days. As a result, Seller Sam’s debt-to-income ratio improved, he became eligible for a new mortgage, and he had extra time to find his dream home to match his dream job in his new city.

Sell and leaseback your home due to kids school

Seller Sandra needed to move, but it was the middle of the school year, and she knew that her school-aged children would benefit from finishing out the year at their current school. However, the real estate market was strong, so she knew that selling quickly was in her best interest, but she wasn’t sure if she could sell without having to move homes immediately. With no mortgage, she researched her options and found that businesses like GVH specialize in creative finance and offer sell plus lease back perks. Seller Sandra and GVH agreed to the following: GVH bought the house through its sell for more solution, Seller Sandra received a large downpayment, she receives regular monthly payments, she will receive a large loan payoff in 5-years, and she rented back her house through the end of the school year. As a result, her kids were able to finish at their current school, and she was able to use the down payment from GVH on her new home to avoid paying private mortgage insurance. Now, her new home mortgage is paid by the monthly payments GVH makes to her, and she capitalized on a hot market while also avoiding having to move multiple times.  

Sell and rentback your home because you can’t find a new home

Seller Seth had been thinking for years about moving to a new home, but he never took the steps to sell because he hated the idea of having to endure the 12-step process for selling a home through a realtor. One day, Seller Sam received a GVH postcard which piqued his interest to call our home investors to see how much we might be able to pay. Seller Seth was then presented multiple offers, and the cash only offer was for more than he dreamed possible. He accepted it on the spot, but within hours he thought he had made a mistake. After all, he couldn’t find and move to a new home before the closing date, so he informed GVH Acquisitions Manager Phil Anderson that he was backing out. Phil informed Seller Seth that GVH would buy and rent the house back to him for 120 days to allow him time to find a new home. Seller Seth once again accepted on the spot, and the deal closed as originally scheduled. Fast-forward 100 days and Seller Seth hadn’t yet found his new home. He was panicked! He called Phil who immediately put him at ease with an offer to extend his home rent-back period by another 120 days. In the end, Seller Seth had time to find his dream home and to beat out a dozen other buyers because he used the proceeds from the sale of his old home to offer all-cash to the seller of his new home.

Good Vibes Homebuyers Sell And Leaseback Perk!

If you need or want cash at your fingertips, want to continue living in your home, and are open to switching from homeowner to renter, then you’re an ideal suitor for Good Vibes Homebuyers sell and leaseback perk! With this incredible service, we will buy your home while you remain as a tenant, giving you the time and resources that you need to achieve your goals. Is a sell-leaseback the right option for you? The answer depends on your unique situation, but learning how we can help make your home equity work for you is a just quick call or form submittal away!

You might also like

  1. How to use creative finance to sell your house
  2. Costs to budget for when moving homes
  3. Is selling to property investors right for you?

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