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A sale and rent back is a type of real estate deal in which an owner sells a piece of property to a buyer, with the express purpose of renting or leasing the property after the sale. Typically, this type of arrangement calls for negotiating the terms of the lease or rental agreement in advance, allowing the two parties to arrive at a plan of action that is considered mutually beneficial. While a property sale and rent back arrangement can work very well, the strategy does carry a degree of risk.
As part of the sale and rent back approach, the new owner agrees to rent or lease the property back to the former owner for a specified period of time. In some cases, this arrangement makes it possible for the former owner to remain on the property for a number of years in the capacity of tenant. At other times, the purpose of this type of agreement is to provide a former owner with an extended period of time to arrange a move to a new location. For example, someone who is planning on moving across the country in a few months may arrange the sale of his or her home now, with the provision that the new owner will allow the seller to rent the property in that interim period. During that time, the seller finds a new home and begins to have his or her belongings shipped to the new location, without the need to deal with a move that must be accomplished in a few days.
The sale and rent back arrangement can also be helpful when the owner is not longer financially able to maintain the property or manage the property taxes associated with ownership. Here, the new owner takes on those responsibilities, alleviating the stress on the former owner. At the same time, the new owner begins to immediately receive some income from the property, since the former owner is renting or leasing it for a specified period of time.
While a sale and rent back can work very well, there are some potential risks to consider. In the event that the new owner chooses to sell the property during the tenancy of the former owner, the arrangement may be declared null and void, making it necessary to negotiate a new lease that may or may not include favorable terms. Should the new owner default on the financing used to secure the property, there is a good chance that the bank or finance company holding the debt would foreclose and offer the property for sale, a set of circumstances that could also mean the tenant would have to move quickly. Consideration of theses types of concerns is important when investigating the feasibility of a sale and rent back, as well as creating a contingency plan that can be implemented in the event that some unforeseen circumstance do occur that threaten the tenant’s presence on the property.
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