Is a Rent-Back Right For You?

Have you ever seen signs advertising a company that buys ugly houses? Or that promises to take any seller seriously, no matter the condition of the home, or the hurry? Are they for real? Chances are they are a company that does rent-backs. A rent back is where the seller sells their home, but continues to live in it, paying rent. Why would a homeowner do this? Often it is an act of desperation, a last chance to avoid foreclosure on a house. Understanding rent-backs more fully will help keep you from making any costly mistakes.

WHY RENT-BACK?

There are only a few good reasons a buyer might want to sell a house quickly, possibly losing money on it, and still live there. One is a divorce, where the money needs to be split, but the spouse who will continue to live in the house cant manage to buy it from the other. Many are people who, for one reason or another, cannot continue to make mortgage payments and need to avoid foreclosure.

If you sell your house and plan to stay in it, that should be a key discussion point during the negotiations to sell your home. Realize that you will have to pay rent, of course. Expect to pay market rate rent. While this may be less than you are currently paying for your mortgage, it is also just as likely it will be more. The extra money, though, pays for the convenience of not having to find a new home in the short-term.

HOW DOES THIS HELP THE SELLER?

Selling your home quickly for less money than it is worth is not, on the face of it, an ideal option. Still, one likely scenario is that the buyer would like to sell the house now, while he has a buyer interested, but would like to allow his kids to finish the last few weeks or months of the school year before moving farther away. School calendars are something sellers often plan around, for good reason.

Also, newly constructed homes almost always fall behind schedule. Supposedly unforeseen delays often keep the new owners out of the new house for weeks after the original completion days. A rent-back gives you a chance to close on your old home while not having to find a stop-gap living arrangement before your new house is completed. While many scenarios have the seller agreeing to a less than perfect arrangement, in this particular one, the seller has the freedom to find just the right buyer without having to worry about working around a shifting date on the new house.

COULD THIS HURT THE SELLER?

When you sell your house to someone else, you no longer own it. This sounds obvious, but it means that you no longer decide how long you can live in your home. They may resell it, or their loan may specifically require them to move into the house. You should consider and discuss this when looking at a rent-back situation.

Another issue to think about is that you are often selling the house as is. You should make it clear, on paper, who will be responsible after closing for repair work. What if something breaks while you are a renter? Will that be the responsibility of the new owner, or will it be yours? This should be spelled out as early on as possible.

Would a rent-back be right for you? Only you can decide. You can see some of the primary issues to consider here, and there are more for each individual sale. For many sellers this is the ideal situation, but careful consideration is warranted in such a life changing event as this. Its worth taking the time to find the right answer.



Repossession