Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Leaseback in Real Estate
As we all know the housing market is at its peak. The homeowners are looking for multiple options to sell their homes in this market while retaining their interest in their properties.
Most of these homeowners are real estate investors who make up about twenty percent of the housing sales.
During the pandemic, many homeowners had challenges making their mortgage payments.
Some of the homeowners are going for an option called sale-leaseback. In this post, we will understand sale-leaseback in detail.
What Is Sale-Leaseback?
This is a transaction where the homeowner sells a real estate property to the buyer and rents it back. This type of transaction is very common in commercial real estate transactions.
The seller would get into this type of agreement when they need funds from the sale transaction of the real estate to put into their next home purchase.
Let’s say that a homeowner wants to sell a property and purchase a new one, however, it may take up to two months before he could buy the next home.
If he sells his home right now, he might have to rent another home till the time he is ready to buy the new home.
He will sign a sale-leaseback agreement with the current buyer to avoid moving into multiple properties.
As soon as the transaction is closed between the buyer and the seller, the seller will get into an agreement where he will now rent the home that he has just sold till the time specified in the agreement (two months in our example).
The seller in this case will avoid moving into two different properties and save money as well.
On the other hand, if the buyer is an investor and looking to buy the property as an investment, giving a sale-leaseback option will help their offer stand out in a competitive housing market.
Also, it would allow the buyer to search for appropriate tenants that he/she would like to rent that property once the leaseback agreement is complete.
How Long Is A Leaseback Agreement?
These agreements usually are for a few weeks maybe thirty days, however, the maximum timeframe for this type of transaction is for sixty days.
It all depends on what the buyer and seller agree upon; the time frame can vary from a few weeks to up to sixty days.
Once the agreement is signed between both parties, the seller has to move out and find another option of either renting another home or buying a new property once the time mentioned in the agreement is over.
What Is The Rental Rate On A Sale-Leaseback Agreement?
There are many ways to calculate the rental rate on a leaseback agreement. However, frequently there are three ways to calculate the rental rates that are used by many homeowners.
If you are in a midst of a competitive housing market, the buyer may request a free leaseback.
This could be a little challenging for the seller; however, if you are competing with other offers, providing free leaseback could be better than adding few thousand under the asking price for the property.
Another way is when the buyer is trying to cover the housing costs like mortgage payment, homeowner’s association fees, homeowner’s insurance, property taxes, etc., and keep that as the benchmark while in the agreement.
Another common way to calculate is to work it as a short-term rental. You get the daily rental rate in the area, multiply that by the number of days you agree to in the contract, and ask to pay that amount.
Other Things To Consider In A sale Lease-back In Real Estate
In a typical rent situation, the tenant needs to give a security deposit to the landlord before renting the property.
Similarly, in this type of transaction, the seller needs to give a security deposit to the buyer which is given back after the agreement is over subject to the damages incurred during the agreement.
It is best to do a walkthrough before the agreement assessing the damage situation in the house and again once the agreement is over so that the buyer can determine how much amount of the security deposit needs to be given back to the buyer in case of any damages are documented.
Conclusion
Whether to get into a sale-leaseback is completely based on the current housing market. If you want your offer to stand out in a competitive market, you may want to put this as an option for potential buyers.
However, speak to your trusted real estate agent who can help you go through this type of transaction depending on your situation.
When it is a seller’s market it would make more sense to give this option, however, in a buyer’s market, this option may not be the best one.
