Why Do People Consider Rent-Back Sales? By Oliver Wingrove
In a struggling economy, you may have seen the advertisements for quick sales for companies such as “We Buy Ugly Houses”. This practice of rent-backs has become a fairly routine part of the house-selling culture for a variety of reasons. In order to avoid foreclosure, some people are choosing this option. There are advantages for this in some cases, and other times it is simply an act of desperation. Knowing the advantages and downsides will help someone to make a fully informed decision before making a mistake.
WHY DO PEOPLE CONSIDER RENT-BACK SALES?
Job loss, too much outgoing income, and divorce are a few reasons that sellers decide to use a rent-back option. There are completely personal reasons that people decide to take the potential loss on property value in order to sell. Many are trying to avoid foreclosure, and this buys time.
When considering a rent-back option, you can choose to stay in your home as part of the negotiations during the sale. When you choose to do this, however, you will have to pay rent. Expect to pay market rate rent for your area, but keep in mind that short term rent may be a couple of hundred dollars extra; but with this comes the convenience of not finding short term housing arrangements.
ADVANTAGES (for the seller)
There are many reasons why people may take this option. Some of the advantages may offset the quick sale/lower earnings on the home. One of the reasons a seller may choose to rent out the home they have sold is to allow children to finish the school year out before moving. This lessons the stress for many families to know that a switch doesn’t have to be made in the middle of the year.
Another reason may be for construction of a new home. Since there are often unforeseen delays in construction, having the option to stay for an extension after the sale makes life much easier. Even without construction issues, some sellers want to have the first home sold before looking for the new home. By being able to rent the first house, they are free to look for the right place to move. This gives the seller the edge when buying a new home.
DISADVANTAGES
If you sell your home to an investor, you are subject to them selling the property. This may make it difficult to extend lease periods. This is also an issue if the loan is contingent upon the new owner taking possession of the property. You need to find out the issues before you make an agreement with a potential buyer.
Another sticky situation develops when you consider that these houses often sell “as is”. For the purpose of the contract, both parties must decide on when the as is period IS. Who will be responsible for any repairs that may come up? Attacking these questions on the front end will help avoid tricky legal questions later.
Should you quick sale your home and rent-back? There is no easy answer. You must consider all the options, and decide which route will serve you best. This might be a good option, or you may decide to go with a regular sale. Research all your options before making a decision.