Sale-Leasebacks and 5 Scenarios When One May Make Sense For You
What's a Sale-Leaseback?
A sale-leaseback (AKA sell and stay) is where a seller sells their home and then rents it back from the new owner for an agreed upon price and duration. In other words, you can sell your home and still live in it.
The buyer would purchase the home and provide a lease to the seller to remain in the home as their tenant. Depending on the situation it can be a win-win for all involved. The seller and new buyer agree to lease terms ahead of time so there is an opportunity to negotiate terms before signing the dotted line.
Why a Sale-Leaseback?
- A homeowner sells their current home before they can find or close on their new home, resulting in the need to stay and rent until they are able to move.
- A seller who is building a new home needs time until construction is complete.
- Both of these scenarios allow the seller to buy time so that they won't have to move more than once, which also prevents them from having to move their belongings multiple times. It also allows the buyer to offer terms that help them stand out, especially in a hot market.
- A homeowner needs cash (due to job loss, medical needs, wish to retire, etc.) but doesn’t want to give up living in their home.
- In some sale-leaseback contracts, the seller can exercise an option to purchase the home back at a later time.
- A homeowner isn't ready to move but wants to take advantage of the housing market and the elevated value of their home. Waiting to sell may result in a lower sale price so using the sale-leaseback option allows them to sell their home, still live in it and take advantage of the hot market.
- In the investor world, sale-leasebacks allow corporations to reallocate capital back into the business when it makes sense to do so. Also the rental payment is tax deductible — whereas if the property is owned, only the mortgage interest can be deducted.
- For the buyer in both of these last two scenarios this option provides immediate, long-term cash flow. WIN-WIN!
As a buyer determining if a sale-leaseback is right for your situation you must speak to your lender — they will need to approve this type of sale, especially if the terms of the agreement are longer than what the bank would typically allow. At a certain point you may be considered an investor rather than an owner-occupant and investor loans typically require a higher down payment along with high credit scores.
Whether you are the buyer or seller it is important to speak with your accountant to determine if a sale-leaseback is right for your situation.
Want more advice about all things home — including homebuying or selling advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a Ready Report that will give you a vital head start in the home buying journey, saving you valuable time and money.
