Ultimate Guide on How to Sell Your Home and Lease it Back
Types of Sell Your Home and Lease it Back Transactions
The first type of sell your home and lease it back transaction is a short-term leaseback. Typically the leaseback is for a few days or sometimes for a couple of weeks. The home buyer is purchasing the house with the intent of making it their home. This type of buyer will sometimes agree to a short-term leaseback to allow the seller a little extra time to vacate the home but the buyer wants to move into the home immediately or shortly after closing.
The second type of home sale with a leaseback transaction will allow the seller to remain living in the home for months and sometimes indefinitely. This type of buyer has no intention of moving into the home and the transaction is simply an investment. The investor is purchasing the home with the intent of renting it so they are happy to provide the seller with a short or long-term lease based on the seller’s needs. Selling to an investor is what makes the long-term lease possible.
In this Ultimate Guide on How to Sell Your Home and Lease it Back, we will be discussing selling your home to an investor and getting a long-term leaseback so you can remain living in your home.
The Sell Your Home and Lease it Back Terminology
As in every industry, there are words and terminology that are created to describe what they do or offer. In the world of real estate investing the terminology to describe “Sell Your Home and Lease it Back” can be confusing as it can be called different things. Some companies will refer to a sale with a leaseback as a “Sell & Stay Program” while others will call it a ”Sale with a Rent-Back”. Here are some of the terms used to describe a sell your home and lease it back transaction.
• Home Sale with Long-Term Leaseback
• Residential Home Sale with Rent-Back
• Sell & Stay Program
• Home Sale with Long-Term Rent Back
Just remember, whenever you see any of the above terms it means the same thing. It describes a program, company, or investor that you can sell your home to and lease it back.
Why Would You Want to Sell Your Home and Lease it Back?
Many situations in life would lead someone to sell their home and lease it back but the two main reasons are to gain access to the equity in their house without having to move from their home. Let’s take a few minutes to look at these two factors.
1. Unlock Your Home’s Equity
Life is full of challenges, surprises, and obstacles that need to be overcome. Many times these challenges are financial. For a homeowner, sometimes the solution to our financial stress is unlocking the equity we have accumulated in our home. Unfortunately, although a home may have increased in value most lenders will only allow a homeowner to borrow up to 80% of the home’s value. This prevents the homeowner from accessing the equity and converting it into cash.
For example, if you bought a home a few years ago for $350,000 and it is now worth $430,000 you have accumulated $80,000 of additional equity ($430,000 current value minus $350,000 purchase price = $80,000 in accumulated equity). Unfortunately, it is usually impossible or impractical to convert the $80,000 of equity into cash. A bank will typically only give a cash-out refinance loan or home equity line of credit for 80% of the home’s $430,000 value which equates to a maximum loan amount of $344,000 ($430,000 home value times 80% of value = $344,000 maximum loan amount). Although the homeowner has accumulated $80,000 of additional equity they cannot convert the equity into cash.
This problem is solved when you sell your home with a leaseback. When you sell a home you gain access to and convert 100% of your home’s equity into cash. The sell with a leaseback is especially popular in homestead-protected states like Texas which have strict laws limiting home equity loans. In many cases, selling the home and leasing it back is the only way to unlock the equity in their house and convert it into cash.
2. Remain Living in The Home
The second reason homeowners want to sell their home and lease it back is the ability to stay living in the home they love. For some, they are comfortable in their homes and like the flexibility that renting offers. They can move out when they are ready on their terms. For others, it is the desire to have someone else be responsible for fixing and maintaining the home.
For many people, the combination of accessing 100% of their home equity and being able to move when they are ready is why they choose to sell their home with a leaseback. For many homeowners, the sell your home and lease it back program is the option that gives them everything they want. Immediate cash and they remain living in their home.
What Solutions Does a Sell Your Home and Lease it Back Program Provide?
A sell your home and lease it back program can be an ideal solution for homeowners who are facing the following situation:
• A retiree who wants to enjoy their golden years. They will have all of the cash without the responsibility to maintain the home. They can move when they decide the time is right.
• Homeowners who are experiencing financial duress and need access to the cash equity in their home. They get the cash they need quickly without the stress, hassle, and expense of moving.
• When a homeowner needs the cash and certainty of the sale of their current home to build a new home. This provides the home seller the cash they need to build their new home while they remain living in the current home until the new home is completed.
• An elderly or disabled person who is in a period of transition. When they sell and lease it back they can transition when they are ready without becoming a burden on loved ones.
• Homeowners who plan to relocate sometime in the next 6 to 12 months. Relocating a family becomes much easier and stress-free when you have already sold your home. You now have the cash you need to relocate and are just waiting for the right time.
• The divorcing couple who are disagreeing on what to do with the house. When they sell and lease it back the one spouse can remain living in the home with the kids while the other spouse gets the cash needed to start over.
When you sell a home and lease it back you get the cash to resolve your financial problems without having to disrupt your life or the life of your loved ones. You retain control of where you live and when you move!
Is Selling Your Home with Long-Term Leaseback Right for You?
When you sell your home and lease it back you will become a tenant. Many former homeowners struggle with becoming a tenant and all of the additional restrictions. As a tenant, you will need permission to get a pet, paint a wall, or redecorate the bathroom. You need to be prepared for those restrictions.
Although most investors buy homes as long-term investments things can and do change so there is no guarantee that once the initial lease term expires the lease will be renewed. In addition, when renting if you are late on the payments the landlord may terminate your lease and evict you.
If you understand and accept these conditions and like the benefits afforded by the program, then a sell your home and lease it back program could be a good fit for you.
Do You Qualify for a Sale with a Leaseback?
Although selling a home with a long-term leaseback is becoming more popular there are still very few investors that offer a rent-back program. Due to the limited availability of the program not all homes or sellers will qualify for a sell your home and lease it back program. Here are some of the limitations you may encounter:
• The home will need to be in an established neighborhood that is located within or near a major metropolitan area. Most investors will not offer the program in very remote or rural areas.
• The homeowner will need to have sufficient equity in the home. When you sell your home and lease it back program there are legal, title, taxes, escrow, and other closing fees. There needs to be sufficient equity to make the transaction financially feasible.
• Most investors will need to be satisfied that the sale and obtaining the equity helps resolve an emergency or temporary financial challenge. They have no desire to buy a home and be forced to evict a former homeowner because they cannot pay the rent. That just creates unnecessary problems for everyone.
• An investor will typically not buy a home if the seller is embroiled in litigation or lawsuits are pending against the property.
It is important for homeowners to carefully consider their options. A sell your home and lease it back program has many great features and unique benefits but it is not a good fit for everyone.
The Process to Sell Your Home and Lease it Back
The process for selling a home and leasing it back is very similar to a traditional home sale but with a few differences. Here is what to expect and what to look for to ensure you are dealing with a fair and legitimate company:
1. The price they are offering for your home needs to be put in writing. Some companies like OutFactors have an automated offering system. You can get an offer in under 2 minutes just by entering your address and answering a few basic questions about the home (personal information is not required). Most other companies will require you to submit information about you and your home and they will respond within 24 hours.
2. The purchase contract needs to be simple and easy to understand with limited legalese. Legitimate companies typically use contract forms promulgated by the state that are designed to be consumer-friendly. These are typically the same forms used by real estate agents.
3. The company should be able to provide you with specific closing costs that you will be responsible for so you will know how much cash you will receive at closing. If they will not or cannot provide this information then they are probably not a legitimate company.
4. The lease needs to be in writing and have all of the terms and monthly rent clearly defined. It should also be attached to the purchase contract as an addendum. Simply put, you want everything in writing.
5. The buyer/company should pay a deposit on the contract like any other buyer and the deposit should be held by a third-party state-licensed title company or law firm. The amount of the deposit should be similar to the amount you would expect from any other buyer, if not higher.
6. You should expect the buyer/company to hire a state-licensed inspector to perform an inspection of your home. If defects or repair work is identified by the inspector, you can expect the investor to request a price adjustment to pay for the repairs but this is no different than selling to a traditional buyer. An investor can usually get repair work done for less than a typical homeowner so the price adjustment should be slightly lower than retail cost.
7. One or two days before closing you should be provided with a draft closing/settlement statement. This document shows you exactly what fees you are paying, to whom it is being paid, and how much cash you will receive at closing. You need to carefully review this to make sure it is accurate and that you are receiving the amount of cash that was promised. If there are any errors or material changes you need to speak directly with the closing agent to find out what changed and get the statement corrected.
8. On the day of closing the closing agent will meet you at a mutually agreeable location or you will need to travel to their office. Have the closing agent review with you each document before you sign. You also want to make sure the lease and/or lease addendum is signed at closing.
9. You need to inform the closing agent how you wish to be paid your sales proceeds (get your cash). The closing agent will typically wire you the funds but you can also request a check. You should receive your cash shortly after closing.
Most companies that offer a sell your home and lease it back program are legitimate but in every industry, there are some bad actors. If you get everything in writing, the buyer pays a substantial deposit on contract, and the closing is conducted by a professional law firm or state-licensed title company you can be fairly confident that the investor/company is legitimate.
Finding a Company that Offers a Sell Your Home and Lease it Back Program?
There are only a handful of companies/investors that offer a sell your home and lease it back program. So you will need to do some research to find a company that offers the program in your area. We suggest you do an internet search with the terms “Sell Your Home and Lease it Back” or “Home Sell and Stay Program” and you should find a reputable company that offers the program in your area.
Selling your home and leasing it back is a unique program that can help many homeowners by unlocking their home equity without having to move out of their home. We encourage you to explore your options and find the solution that is best for you and your family!
We hope you found this article informative and helpful.
Ultimate Guide on How to Sell Your Home and Lease it Back | Unlock Your Home’s Equity | OutFactors – Dallas Fort Worth, TX