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 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.