What Is a Rent-Back Agreement? A Godsend to Home Sellers Not Ready to Move
By Angela Colley | Jul 18, 2016

What is a rent-back agreement? You’ll definitely want to know if you’re buying a new home while selling the one you’re currently living in. As you might imagine, this double transaction can require some really good luck, timing-wise, to get just right. After all, if you sell your home and have to move out before you’ve closed on your new home or even found a place to live, that means you’ll have to either couch surf or pay to stay in hotel limbo. Either way, you’ll have to endure the hell of moving twice.

Not so with a rent-back agreement, which gives the sellers extra time to live in the home after closing, essentially letting them become the new buyer’s temporary tenants. It doesn’t last for long—there are usually time limits—but it will give sellers a chance to close on their new home and pack up for the big move.

For the buyer, offering a rent-back agreement can have a couple of big bonuses. For one, if it’s a competitive market, an offer that’s flexible on move-out dates might very well have an edge. And the rent that the seller would pay the buyer could help recoup those hefty closing costs.

Done right, it can benefit everyone, but there are some things to consider before you jump on board.

How a rent-back agreement works
Like the name implies, rent-back agreements are legally binding agreements made in writing between the buyer and the seller. Both parties need to decide on a couple of issues, namely how long the seller will need to stay in the house after closing and how much rent the seller will pay to be there. To figure out what rent would be fair, check out realtor.com/rentals in your area, then do the math.

To play it safe, the buyer may also charge a refundable deposit, just like any landlord would.

“There’s always the chance that damages could occur while the seller is living there. That’s why it’s a good idea to have a holdback deposit of anywhere between $5,000 to $10,000,” says Emily Beaven, a Realtor® with Coldwell Banker in San Francisco.

Once everyone agrees, the buyer will close on the house, at which point the buyer will officially take possession and pay any upfront costs like a normal closing. In addition, the seller will pay any security deposits or upfront rent and remain in the house.

What rent-back agreements mean for the seller?
Getting more time to buy your next dream home can be a lifesaver, but don’t dawdle—a rent-back agreement won’t buy you much time.

“Typically, lenders won’t accept anything longer [than] 60 days,” Beaven says.

While you’re still at the property, there’s one more potential downside to deal with: It isn’t really yours anymore. You technically have a landlord now, which means if you cause any damages, you may not get your security deposit back.

What rent-back agreements mean for the buyer
If you’re not in a rush to move in, offering a rent-back agreement can help you get your dream home.

“It really can make your offer stronger,” Beaven says, but don’t take it too lightly. Since you’re the new owner (and the new landlord), you might run into a few new problems.

“The buyer, like a landlord, is now responsible for making any repairs should, say, your water heater break,” Beaven says. Plus you may have to make those repairs immediately.

Buyers will also have to worry about the sellers actually moving out on time. It’s rare that they drag their feet, but it can happen. If so, you will have to go through the usual process landlords do to evict your tenants, which is rarely pleasant. Still, odds are all will go fine, and your sellers will be grateful they won’t have to move twice.

Angela Colley writes about real estate and all things renting and moving for realtor.com. Her work has appeared in outlets including TheStreet, MSN, and Yahoo. Follow @angelancolley

Selling your house and renting it back the right way.

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Selling your house and renting it – the right way
April 4, 2016/in Blog /by Emerita Mercado

You must have heard about Conrad Black selling his Bridle Path mansion and renting it back. Yes, you heard it right! He will be paid for the sale and then pay rent to live there. This arrangement is called sale/leaseback. It is a transaction wherein the owner of the property sells that property and then leases it back from the buyer at a rental rate and lease term that is acceptable to the owner. The primary purpose of this arrangement is to raise money or to free up the owner’s equity for other uses, while retaining use of the property. This way, the seller gets the profits from the sale while keeping possession and use of the property, while the buyer is assured immediate long-term income on the property. If the property being sold qualifies for the principal residence exemption, then any profit from the sale is tax free. This arrangement makes sense for those who have built a sizeable equity in their homes as prices have increased dramatically.

Advantages of the Sale/Leaseback Arrangement:
The main advantage to this option is that you sell your property and receive the cash, which you can use how and when you wish. Whether it is to invest in other property, expand your business or pay off your debts. Another advantage is that you rent the property back from the new owner. This has the added advantage of a set rental amount agreed upon for a set number of years. When you give up your ownership rights to the property, you also decrease your maintenance costs. The last advantage you will want to take into consideration is whether the agreement you sign gives you the ability to buy back the property after the agreed rental period. This is something you must take into consideration and a huge benefit when the lease comes to an end especially when housing prices continue to rise.

Disadvantages of the Sale/Leaseback Arrangement:
While there aren’t many, you need to weigh them up against the sale and lease back advantages to decide if it is the right choice for you before going ahead. One of the disadvantages you may want to consider is that you lose certain rights to the property when you become a tenant. This includes using the property as collateral when applying for a loan, if you ever need more cash. Other disadvantages include that after the agreement, when it comes to signing a new rental agreement, you may not have any control over how much the rental will be increased. During the rental term you know what to expect, but when your years are up, you may have to consider moving to afford the rental amount. The last disadvantage is that some agreements do not offer the ability to buy the property back from the new landlord and this is a serious consideration, which can affect your objectives in the future. As this maneuver is fairly common in the commercial real estate world, it has started showing up in residential real estate deals. In most cases, financially strapped homeowners are better off getting in touch with their lenders and seeing what options are available to avoid foreclosure before entering into any kind of sale-leaseback agreements. Whether you are thinking of using this arrangement, or if this arrangement suits you, I encourage you to work with a financial planner, a real estate professional and a lawyer to review your situation and draw up the terms and conditions to make sure you are protected. This arrangement may benefit Conrad Black, however, it is not for everyone to embark on.

Emerita Mercado, specializes in trust and estate planning issues. She helps clients protect their assets by setting up family holding companies, private foundations and family trusts as a means of intergenerational wealth transfers. Emerita also collaborates with families and executives to create dynamic total wealth management solutions.

Is Selling your home and renting back a good option

Are Sell and Leaseback Programs a Good Option for Boomers?
Posted on March 28, 2016 by Gordon Powers 3 Comments

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Are sell and leaseback programs a good idea-

Rising home prices often mean that real estate forms a top-heavy portion of many seniors’ wealth in retirement. This forces some to tap into their home equity in order to pay the bills and overcome their past failure to save.

Until recently, their only choice was a reverse mortgage, a secured loan in which lenders like HomEquity Bank make monthly payments to them, based on the equity that they’ve built up over the years, rather than the other way around.

Related Read: Case Study – Should These Boomers Get a Reverse Mortgage?

Reverse Mortgages An Expensive Option
One major attraction of this arrangement is that the payments you receive aren’t considered taxable income and thus won’t affect your potential government retirement benefits.

A common criticism of reverse mortgages is that they’re expensive, resulting in the view that they should only be used as a last resort. And the certainly are, compared to more common mortgage loans. But the ability to stay in the family home this way is really a bit of a luxury, argue plan sponsors, and having someone else assume some or all of the appreciation risk ought to cost something.

Selling But Not Really Leaving
But what if you could sell out altogether and then lease back your family home, freeing up all that cash and leaving you unexposed to the drop in home values that so many predict?

Although fairly common when it comes to commercial real estate – in those cases, a business sells a building to raise money, and then leases it back from the new buyer, usually with some tax breaks – sale and leaseback arrangements are a fairly new wrinkle in the residential housing market.

Enter Sell ‘n STAY, a new option for older homeowners looking to unlock their home equity by selling it to an investor/buyer and then entering into a lease agreement with the new owner – with you staying on as the tenant.

A Tenant In Your Own Home
The selling price is determined by comparing sales of similar homes in your neighbourhood backed, if you’re smart, by the findings of a certified appraiser, minus the normal commissions and selling costs.

You make the final decision as to the suitability of the landlord who, once your home is sold, will be responsible for paying taxes and any condo fees, as well as repairs and maintenance. You’ll still be responsible for paying utilities, telephone, cable, and renter’s insurance.

While the standard Sell ‘n STAY lease agreement purports to take into account typical landlord and tenant stipulations – i.e., a 10-year lease, which alleviates the concern of you being suddenly ‘kicked out’– you’d be wise to have the document scrutinized by your own lawyer and shaped to your advantage.

How will the two of you handle repairs, for instance? If you’ve been living in the house for decades, your view of appropriate maintenance may be quite different from the new owner’s perspective. Including a possible buy-back may give you some wiggle room here.

Rent Costs Will Rise Over Time
Expect your rent to be something like 5-6 per cent of your home’s sale price, although that will change over time despite any rent controls. In Ontario, for instance, the Residential Tenancies Act stipulates that annual increases can’t exceed 2.5 per cent, even if the CPI is running higher. Keep in mind that your annual rent cost isn’t ever likely to head lower.

On the surface, a sales-leaseback looks like it could be a win-win. Aging homeowners get money to fund their retirement; motivated buyers get a property with a built-in, and suddenly more affluent, tenant.

How some homeowners are selling their home and renting back

How some sellers are cashing out big and then staying in their homes
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Toronto woman has money in the bank, is living in her home and pays less in rent than her previous mortgage

Natalie Nanowski · CBC News · Posted: Apr 20, 2017 5:00 AM ET | Last Updated: April 20, 2017

Some Toronto homeowners are cashing out when the market’s hot and then renting their properties back from the new buyers. (Mike Crawley/CBC)
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What if you could cash out on your home when the market’s hot and then stay in it?

That’s what some sellers are doing by renting their properties back from the buyers for less than their previous mortgage payments.

For 71-year-old Anne Cottrell the thought of listing her home for sale was daunting.

Toronto homeowners cash out of hot real estate market amid uncertainty

ANALYSIS: What governments could do to cool GTA real estate market

“I was getting nervous about my age and what would happen when I retire,” Cottrell told CBC Toronto. “But I wanted to capitalize on the market, get rid of my mortgage and have some extra money.”

The only problem: she wasn’t ready to downsize.

“When I started looking at what the rent would be for a one bedroom, plus den, it wasn’t worth it.”

Cottrell negotiated a rent that’s less than her mortgage
Reluctantly, Cottrell put her three-storey King Street West townhouse up for sale.

“But then I basically freaked out because I realized that I didn’t want to move,” said Cottrell, who has lived in her home for about 25 years.

Anne Cottrell says she never imagined she’d be able to sell her townhouse and then rent it back from the new owner for four years at a fixed rate. (Petar Valkov/CBC)
That’s when her agents recommended something called a lease back, or a sell and stay. It’s a clause in the listing that tells potential buyers that the seller plans to rent back the property for a year or more after it’s sold.

“We’ve been doing this now for the last two years,” said Andrew Ipekian, real estate broker with Keller Williams Referred Urban Realty. “It’s much better than those reverse mortgages. This is where you get the money in your pocket and you just rent. Someone else is responsible for the property tax and the maintenance.”

Cottrell sold her townhouse to a Chinese investor and signed a four year lease on the same day.

She negotiated a fixed rent that’s lower than what she was paying in mortgage and maintenance fees combined.

“It’s like freedom 71. My mortgage is paid off. I invested the extra money and I can travel or do whatever I want,” said Cottrell.

Used the extra money to buy a sailboat
Dan and Tina Heimann agree. Selling their lakefront condo gave them financial freedom, helping them achieve their dream.

Tina and Dan Heimann used the extra money they got from the sale of their condo to buy a sailboat. (Tina Heimann)
“We’re at a stage in life where we’re thinking of retiring and leaving,” said Dan Heimann. “And one of our retirement plans is to take off on our sailboat. We don’t need to be in the city anymore.”

They too wanted to get in on the seller’s market but weren’t in a rush to leave, because the preconstruction condo they bought in Cobourg won’t be ready for at least another year.

“We didn’t want to have to be forced to sell in 2018,” said Heimann. “Sure this year [the market] grew by 30 percent, but next year? Maybe not.”

To find the perfect buyers for the Heimanns’ two-bedroom condo in The Beach, Ipekian’s company held a private open house for prospective buyers from their neighbourhood.

In one day, the condo sold to a couple a few blocks away who plan on using it as their retirement home.

As for the Heimanns, they bought a sailboat with the extra money.

“It doesn’t matter if our condo isn’t ready on time,” said Tina Heimann. “[The buyers] are planning on moving in, but they’re not in a hurry. So we can extend our one-year lease.”

Dan and Tina Heimann’s two bedroom lakefront condo in The Beach. (Tina Heimann)
Landlords know tenants can pay rent
Ipekian says this deal doesn’t just appeal to those who are in search of the perfect unit.

The “sell-and-stay” idea also works well for people who want to demolish the home they bought and build a new one on the property, but know permits will take a while.

And of course, as in Cottrell’s case, this deal draws in investors.

“Many people are scared of renting their investments out,” said Ipekian. “But here you’re already kind of interviewing the prospective tenant because you’ve already seen the house and the condition they kept it in. You also know their financial situation because you just wrote them a fat cheque.”

ABOUT THE AUTHOR

Natalie Nanowski

Reporter, CBC Toronto

Natalie is a storyteller who spent the last few years in Montreal covering everything from politics to corruption and student protests. Now that she’s back in her hometown of Toronto, she is eagerly rediscovering what makes this city tick, and has a personal interest in real estate and investigative journalism. When she’s not reporting you can find her at a yoga studio or exploring Queen St. Contact Natalie: natalie.nanowski@cbc.ca

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How to avoid problem’s in your estate

Recently, I experienced the pleasure that all Realtor® moms have helping their children
find their first perfect starter home. With my son and his wife being first-time home
buyers and market conditions rapidly changing, they were worried about not being able
to afford a home, especially in downtown Toronto. 
After months of looking, we found the perfect house: A fixer-upper estate sale. It had 4
bedrooms and a huge lot in a safe neighbourhood.  They were very excited to find the
perfect fit for them. My son, being a Millennial, researched all pertinent details online,
even the fact that the owner had passed. The owner passed on February 2017 and the
home was listed in April 2017 with a notation about including a probate clause, as all the
details surrounding the estate were not yet settled. On January 29th of this year, and
after weeks of negotiations, our “conditional “ offer was accepted. The process was
exhausting as we had to deal with estate trustees and multiple lawyers.
This became a very difficult transaction as the property was registered under the seller's
married name as well as two adjacent properties which were registered under her
maiden name.
One of the adjacent lots was classed as a heritage property which she used as a 7-
apartment rental. The other home she shared ownership with one of her sons. I
discovered that when you die, your land holdings bordering each other amalgamate into
one. This became a nightmare for the lawyers who were attempting to separate the 3
lots. The original land was severed in 1880 and again in 1958. Those severances
disappeared upon her death.  
With no blue prints or records in Land Titles, the long process of dealing with city
planners, architects, lawyers, city clerks, heritage, severance and bi-laws began. The
seller's children had to hire an architect to recreate the blueprints, while dealing with the
numerous probate issues. Eighteen months after the process began, the children had to
pay for probate, capital gains, property taxes, roof repairs, raccoon removal, electricity
and extra legal costs for all of these searches.

If the Sell ‘n STAY™ program was implemented months before their mom’s death, the
estate would have saved the costs of probate, capital gains and some taxes. They could
have simply handed the keys back to the landlord and clear out the home at that time.
In this case, they would have saved over $60,000 in unnecessary expenses. 
Sell 'n STAY™ is the process where you sell your home to an investor and lease it back
for the time frame that suits you. The only thing that changes is your ownership status
and you no longer pay taxes or are responsible for any repairs. If you're interested in
learning more about Sell 'n STAY™, visit sellnstay.com or call us directly at 905-271-
5133.

 
Written by Saskia Wijngaard
 
Sale Representative, Keller Williams Realty Solutions  
 
CEO, Sell ‘n Stay Inc. at residental sale-leaseback company.

HELOC’s – The Pro’s and Con’s

Advantages of a Home Equity Line of Credit
1. You pay interest which is compounded only on the amount you borrow, not the total equity available in your credit line.
2. Interest paid is usually tax deductible if used for an investment.
3. They’re relatively easy to open if you have a lot of equity in your home.
4. You can borrow up to 80 percent of the home’s equity.
5. You can use it whenever you like.
6. The interest rate also may be lower than the rate on a second mortgage.
7. The closing costs may be more affordable as well.
Disadvantages of a Home Equity Line of Credit
1. A HELOC is a loan and must be paid back—with interest compounded like a credit card.
2. HELOCs typically have a life of 10 years, after which it becomes a regular home equity loan with amortized payments unless you renew it. Renewing means you must qualify all over again, which isn’t as easy to do once you’re retired and don’t have a regular paycheque.
3. Without discipline, you might overspend, tapping out the equity in your home and leaving yourself faced with a large principal and interest payments during the repayment period.
4. Terms and characteristics of home equity loans and lines of credit vary from one lender to another. Be sure you understand the repayment terms of your loan before you commit to a lender, and don’t be afraid to shop around before you sign on the dotted line.
5. The bottom line: Using the equity in your home before selling can be a powerful financial benefit. But remember, you are using your home as collateral. One risk to avoid, whether you choose a home equity line of credit or a loan: Resist funding short-term needs with what may eventually amount to a long-term loan.