In 2016, Garry Marr of the Financial Post, wrote an article titled “How to exit the housing market without exiting your house”. That article introduced Sell ‘n STAY® to Canadians as a concept that has been around in Canada since 2013, (and in other parts of the world, even longer). Mr Marr spoke highly of the concept that sold people’s home to an investor and then the original owner would rent back.

What is Sale and Leaseback?

Sale and Leaseback is an alternative for people to get out of the housing market, capitalize on their home equity, put the equity back in their pockets. We all know you can’t eat bricks and mortar so this gives people the ability to finance their future by leasing back their own property. Commerical properties have long utilize this concept so it is only new for the residential space. This concept is those who want to live debt free, or seniors looking to finance their retirement, or smart money looking to get out of the market only to buy back in when the market declines again. Although historically this option was very attractive to older demographics, it has become the cure all for people with bruised credit or those wanting to capitalize on the increase in equity. Garry Marr wrote that the concept of Sale and Leaseback has been more prevalent on the commercial property front, where even some financial institutions have sold off their property holdings in the past with the intention of staying for the length of a signed lease.

The Huge Benefits Of Using A Sale and Leaseback Solution

A homeowner can effectively cash in on their home’s equity – sell their home, leaseback and stay in their home while paying rent and can live worry free with more cash flow. The landlord is responsible for maintenance, repairs and property taxes and the insurance of the physical house. Seniors enjoy the worry free nature of having someone else fix and maintain their property.

A majority of people say their forget that they are renting, well, until something goes wrong and they end up just calling the landlord to have it fixed.

“It’s worry free living” says Jim who did a Sell ‘n STAY® on his property back in 2017.

Sam who had debt issues and used Sell ‘n STAY® to break free from the constant worry and harassment of debt collectors loved the chance to catch his breathe and see his equity grow instead of seeing interest pile up on top of interest. “I was using a reverse mortgage until I read about Sell ‘n STAY®. I was noticing that the interest that thought I was paying was accumulating much faster than I expected. At this rate I would have nothing left over for my children’s future. ”

With a sale and leaseback, the homeowner sells their home to an investor, who rents their home back to them. The homeowners eliminate the risk by choosing not to partake in the real estate market’s fluctuations but also forgo the potential that their home realizes a sudden real estate market surge in price. Due to Canadian rental protection, for the most part, the homeowners can be secure renting their own home, but the landlord does control the cost of rent, which can vary over time. In addition to that, the cost of utilities and household maintenance will need to be determined between the tenant and the landlord and repairs are done as per the landlord’s schedule.

Sale and Leaseback Advantages and Disadvantages

Advantages

Disadvantages

You don’t own your house anymore. So you can’t benefit from the increase in the equity.

An Alternative Solution: A Reverse Mortgage

Recently, I found this information about an alternative to

Sell ‘n STAY® solution the Reverse Mortgage posted on the following link https://seniorsfirstbc.ca/for-professionals/reverse-mortgages/

Advantages of a Reverse Mortgage

A reverse mortgage allows the homeowners (55+) to remain in their home for as long as they want to, while getting a qualified amount of tax-free cash from the home. The homeowner is able to withdraw from their home equity and maintain ownership, which in today’s market, can be a great advantage since they may get real estate appreciation. However, if the real estate market collapses, the homeowners will never owe more than the fair market value of the home.

Disadvantages of a Reverse mortgage

  1. Interest is charged at a substantial higher rate than a conventional mortgage on Aug 26. 2022 this is 9.73% and can change at anytime.
  2. The equity you hold in your home will decrease as the interest on your reverse mortgage compounds and accumulates over the years.
  3. No control over the contract.
  4. High costs to break the contract.
  5. A nightmare when the owner dies. Additional legal costs that need to be paid out of pocket.
  6. Since the principal and interest will be repaid to the lender at your death, there will be less money in your estate to leave to your children or other heirs.
  7. Owner is still responsible for property taxes, repairs, maintenance and insurance.
  8. If you are forced to sell your home because of a change in circumstances, there can be a lot less of the proceeds available for alternate housing, etc.
  9. It is easy to get caught up in “free money” but as my mother always said only the sun goes up for free.
  10. The costs associated with a reverse mortgage are usually quite high, including substantial upfront charges. They can include:
    • a home appraisal fee, application fee or closing fee,
    • fees for independent legal advice,
    • a higher interest rate than for a traditional mortgage or line of credit,
    • a repayment penalty for selling your house or moving out within three years of obtaining a reverse mortgage.

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