It’s all about the numbers: A financial example of a Leaseback

Daniel Abadi

When you sell your house with a Leaseback you can free up the cash/equity locked in your house without having to move.

The Buyer of your house, the “Investor”, will give you a written offer to buy your house combined with an offer to rent it back to you. If those numbers make financial sense, you continue to closing. Your mortgage gets paid off and you receive the remaining proceeds after the closing costs are deducted. Estimated costs should be disclosed to you prior to signing a contract.

For example, let’s say you are selling your house for $300,000 and you have a  $190,000 mortgage. That means you have $110,000 in equity. Most real estate transactions include closing costs such as title search, lien search, settlement fees, documentary stamp tax, Intangible tax, deed recording fees, real estate tax prorations, and commissions. These costs can range from 8-10% of the contract price depending upon the month you close. In this example let’s use 10% or $30,000.

$ 300,000        Contract Price

– 190,000         Mortgage to be paid off

$110,000         Equity

–   30,000        Closing Costs and Commissions

$  80,000         Proceeds from the sale

From the time you close and transfer ownership, you are no longer responsible for the majority of maintenance and repairs to your house. You just pay rent and contact the property manager for those issues.

In some Leaseback cases, the Investor will accept Prepaid rent at closing. This means you can pay a full year of rent upfront at closing and deduct it from your proceeds. If the Investor asks you to pay $2000 monthly rent X 12 months = $24,000 annual rent.

$  80,000         Cash Proceeds from the sale

–   24,000        Total Annual Rent for the first year

$  56,000         Balance of Cash proceeds and first-year rent is PAID IN FULL

Leasebacks can give you a financial infusion, and the ability to stay in your home. Win-Win Situation!

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