Sell It And Leaseback

Become A Tenant (“Rentback” or “Leaseback”)

Have you considered selling your house for a lump sum of cash and becoming a tenant?

Homeowners often are unaware of this option. It’s a terrific way to cash out home equity without re-building your life in another location.

LegalMatch defines a lease back like this:

A seller leaseback, also called a seller rent back or sale-leaseback, is a financial transaction in which a person sells property and then leases or rents from the new property owner. In this scenario, the seller no longer owns the property, but lives in the property for the length of time stated in the rental agreement. The seller realizes profit from the sale of the property while the buyer is assured of rental income from the lease agreement.

The key steps to a leaseback are as follows:

  • Buyer and owner agree on sale price and closing date.
  • Buyer and owner agree on a lease terms, including monthly rent and length.
  • Buyer and owner execute the purchase contract and lease agreement.
  • Upon closing, owner receives the lump sum cash payment and transfers ownership to the buyer.
  • The previous owner makes a security deposit and is now a tenant in accordance with the terms of the agreed upon lease.

Pay attention to lease details. The “terms” of the lease agreement often determine whether the leaseback will be a positive experience. Important lease terms for most prospective tenants:

  • Termination Date and Renewal Options. Most lease agreements terminate after 12-months and do not auto-renew. However, each lease and state is unique.
  • Security Deposit. Payment to the landlord to ensure that rent will be paid and other tenant responsibilities complied with.
  • Rent Payment Grace Period. Window of time, typically 3 to 5 days, that tenants have to pay rent before incurring a late fee.
  • Fixtures Provided. Most apartments come with kitchen appliances. Make sure to ask the landlord if these will not be provided.
  • Remodeling Restrictions. Like to paint? Install a TV on the wall? Check the rules before making modifications.
  • Homeowners Association Rules. Townhouses and condos typically belong to a “Homeowners Association” that specifies rules and regulations for all occupants.
  • Number of Occupants Allowed. Got a big family? Planning for children? The written lease could limit your options.
  • Guest Policy. Like to entertain overnight guests? Some landlords restrict the hours and number of guests.
  • Subletting Policy. Subletting occurs when a tenant rents out the property they are leasing from the landlord.
  • Pet Policy. Landlords and buildings often restrict pets by size, weight, and type.
  • Renters Insurance. Protection for belongings and coverage for additional living expenses, should the rental become uninhabitable.

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