Sale and rent back is a real estate transaction where a landlord sells a property to a buyer and rents it back for a specified period. It can be useful for financial reasons, but there are risks, such as the possibility of the new owner selling the property or defaulting on the mortgage.
A sale and rent back is a type of real estate transaction in which a landlord sells a property to a buyer, with the express purpose of renting or leasing the property after the sale. Typically, this type of arrangement requires negotiating the terms of the lease in advance, allowing the two parties to come to an action plan that is deemed mutually beneficial. While a real estate sale and lease arrangement can work very well, the strategy does come with a degree of risk.
As part of the sell and rent back approach, the new owner agrees to rent or lease the property back to the former owner for a specified period. In some cases, this arrangement allows the former owner to stay in the property for several years as a tenant. At other times, the purpose of this type of lease is to provide a former owner with an extended period to arrange a move to a new location. For example, someone planning to move to the country in a few months could arrange to sell their home now, with the proviso that the new owner allows the seller to rent the property in the interim. During this period, the seller finds a new home and starts shipping his belongings to the new location, without having to deal with a move that must be completed in a few days.
The sale and lease agreement can also come in handy when the owner can no longer financially maintain the property or manage the property taxes associated with the property. Here, the new owner assumes these responsibilities, relieving the old owner’s stress. At the same time, the new owner immediately begins to receive income from the property, since the former owner rents it out or leases it for a specified period.
While a sale and lease can work very well, there are some potential risks to consider. In the event that the new owner chooses to sell the property during the former owner’s tenancy, the agreement may be declared null and void, making it necessary to negotiate a new lease which may or may not include favorable terms. If the new owner defaults on the mortgage used to secure the property, there is a good chance that the bank or finance company holding the debt will foreclose and offer the property for sale, a set of circumstances that could also mean that the tenant would have to move quickly. Consideration of these types of concerns is important when investigating the feasibility of a sale and rent back, as well as creating a contingency plan that can be implemented in the event that any unforeseen circumstance occurs that threatens the tenant’s presence in the property.
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