Sell Your Home and Rent It Back

It is estimated that close to 1 million properties are put on the market but are unable to be sold each year in the United Kingdom leaving many homeowners in dire financial straits. When forced to do so, usually after being faced with the threat of repossession. many of these people choose to sell their homes for cash and take the “leaseback” option. This effectively means that they sell their homes to companies and then rent their home back while the company or a designated individual becomes their landlord. With little regulation of these rent back/leaseback schemes there is considerable risk involved to the homeowner turned tenant. If you are considering selling your home and renting it back, be sure to do a thorough analysis of the deal that you are offered before accepting just any terms. If you don’t, in the long run you might still lose your home anyway.

Selling Your Home and Renting It Back: The Pros

There is one obvious benefit of selling your home quickly and renting it back: you can avoid having your home repossessed when you secure the proceeds of the sale quickly (and usually in cash). When these rent back/leaseback schemes work fairly, it means that the homeowners sells his or her property at a fair market value, and then simply rents it again for a fair market (per week or per month) rent. In between, the homeowner turned tenant needn’t worry about packing up possessions, changing decorations, engaging the services of moving companies or wasting his or her time looking for suitable rental accommodations. It also means that individuals do not need to alter their commute to work, children do not need to change schools and life can generally carry on uninterrupted. Unfortunately, this is the best case scenario that is only achieved when both the company buying the home and the individual selling the home and renting back are both above board.

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Selling Your Home and Renting It Back: The Cons

When rent back/leaseback schemes go wrong, they can go very, very wrong. From the beginning the offered price for the house may be well under fair market value, but if it covers the mortgage some sellers are so desperate to avoid repossession that they will agree. The level of rent that is asked may then be above the market average, and sharp rent rises may also come into play. Some sellers turned renters also agree to a time limit for their rent, meaning that at the end of a year or two year tenancy not only can the rent be raised but they may find themselves “evicted” or their lease un-renewed by their landlord. There is also the risk that the landlord himself may be unscrupulous and may not even pay the mortgage as he agreed, leaving the home open to repossession once again and this time the tenant at the mercy of their decisions.

The benefits and risks of selling your home and renting it back will differ for everyone, and thoroughly analysing the deal that is set before you is the only way to ensure that you are not taken advantage of.