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.