What is a leaseback?
A Leaseback is a transaction where the seller of an asset, in this case, Real Estate, leases it back from the new Buyer at closing for an agreed-upon rent and terms.
This historically has been a short term accommodation to the Seller when the sale/closing date does not coincide with the date the Seller is able to vacate. Sometimes the Seller’s new home purchase is delayed and rather than moving to a hotel between closings a Leaseback option can be negotiated. This has also been called a Post Closing Occupancy Agreement. Mortgage Lenders are usually understanding of these situations with certain restrictions.
A Leaseback can also be a great long term option if the Seller has not found their new home yet but wants to take advantage of a strong market. Companies, such as Sell2Rent.com offer the opportunity to match a Seller with a Buyer/Investor willing to Lease the house back to them for an extended period of time.
2. How is a Leaseback accomplished?
The first thing that needs to occur once you find a Buyer who will enter into a Leaseback contract with you is to negotiate the Purchase Price and the Rental terms.
The investor who buys your house is approaching it as a business and will be looking for a financial benefit or return on their investment. They will calculate the overall cost of acquiring and maintaining the property and determine the monthly rent to achieve their goal. They will present you with an offer that includes the Purchase Price and how much rent you will pay and if it is acceptable you move forward to closing and sign a lease. Normally when you sell your house you rarely have any further interaction with the buyer after the closing. The unique thing about a Leaseback is that it is the beginning of the relationship, not the end.
3. Benefits of a Leaseback
Once you sell your house and stay as a renter you free yourself of most of the burden of homeownership. Depending on the terms of your arrangement, the repairs and maintenance of the property will fall on the new owner of your house. If the plumbing clogs or the roof leaks, a phone call to the property manager handles the issue. Things like lawn care, pool maintenance, pest control are usually included as well.
Another benefit of selling your house with a Leaseback option is the ability to cash out the equity that you can use immediately without upsetting the balance of your life.
Whether you have college to pay for, a new house to build or want to take a long-overdue family vacation, a Leaseback may give you the cash you need to accomplish those goals.
Deciding to sell your house does not mean you have to move away. With a Leaseback, you can enter into an annual agreement and keep things just the way they are until it is the right time to move. No packing and unpacking or change of address, no new schools to adjust to or new roads to learn. This new trend can help you free up your equity while keeping those familiar surroundings. In a Leaseback, it may no longer be your house but It can still be your home.
Read More: It’s all about the numbers: A financial example of a Leaseback