Could a Leaseback Solve Your Problems?
You’re closing on the sale of your old home on the 10th, but not closing on the purchase of your new home until the 30th. What do you do for the three weeks between the sale of one house and the move-in date of the other?
Investopedia defines a leaseback as “an arrangement where the seller of an asset leases back the same asset from the purchaser.” In a leaseback, the arrangement is made immediately after the sale, with the number and amount of payments specified. Essentially, the seller becomes a tenant and the new owner becomes the landlord.
Let’s say you’re selling your home and moving into a new one. You’re closing on the sale of your old home on the 10th—but you’re not closing on the purchase of your new home until the 30th. What do you do for the three weeks between the sale of your old house and the date you can move in to your new house?
Or maybe you’ve gotten a new job in another state and you plan to start in three months. You’ve already got living arrangements in your new town, but you need to sell your house before you go. You list it, and it sells in less than a month. So what do you do for the next two months?
You could move into a short-term rental or hotel, but what about all your stuff? You could move the entire contents of your life into an expensive storage unit, but moving one time is bad enough, let alone twice.
That’s where the leaseback comes in: It allows you to stay in your home, even if you’ve already been paid for selling it. Leasebacks are usually a short-term arrangement, giving the seller more time to move out of the property without causing a delay in the sale of the property.
Rent is usually determined by computing the buyer’s (not the seller’s) PITI—principal, interest, taxes and insurance—and dividing by 30 days.
PROS
Seller does not have to rush to relocate.
Seller has money in hand to make offer on next house without financing contingency. Seller may even have enough money in hand to be a cash buyer—a strong position in a competitive market.
Seller avoids hassle and expense of temporary homes and multiple moves.
Buyer improves odds of offer being accepted if open to this option.
CONS
Impatient buyers may demand possession sooner than what was agreed upon.
If terms are not set properly, seller could take advantage of loopholes to overstay.
Seller could take something (a chandelier, for example) or leave house dirty or damaged.
CONSIDERATIONS
Have the terms figured out and agreed upon by all parties before closing on the sale of the home.
Make sure buyer’s homeowners insurance is in effect.
Make sure seller’s insurance allows for leasebacks.
Since the seller is now the renter, the seller has to make sure the property remains in good condition throughout the leaseback term. The buyer is now the landlord, and becomes responsible for any maintenance or repairs needed while the seller is still in the house. A home warranty is a good idea for any unforeseen issues that might arise.
IN CLOSING
A leaseback can be a win for both buyer and seller, and a well-crafted leaseback agreement will ensure that all problems are avoided. If you’re ready to sell your home but are not ready to move immediately after closing, I can help you explore your options—call me at 813-732-7320 or email me to chat!
Carrie Rowland is an Accredited Buyer’s Representative,® Certified Probate Real Estate Specialist,® Military Relocation Professional,® Graduate of the Realtor Institute® and a Realtor-Associate at RE/MAX Alliance Group in South Tampa
