A leaseback is simply the process of selling your home and then leasing the home back from the new homeowner. Previously popular only in Europe, Americans are also finding this option appealing. A lot of homeowners have thought of the leaseback option as an alternative to taking out a line of credit with monthly payments.
This process can help both the buyer and the seller in the arrangement. The risks involved are all on the part of the investor in a leaseback contract; therefore, buyer beware. If the seller is in grave financial or legal dilemmas, the buyer could lose their equity because of a bankruptcy or an IRS audit on the homeonwer.
The leaseback benefits the seller who is in need of money quickly. The homeowner gets a big influx of cash, and is permitted to stay in her house by renting it back from the investor. If the homeowner shows interest in buying their house back at the end of the leaseback agreement, a lot of investors will think about including that option in the contract. This process is only useful to the seller if she has not got a second mortgage on the property. The homeowner rarely has much cash left from a leaseback sale after paying off a double mortgage.
A leaseback arrangement is one way to invest in real estate. In addition to buying a home below the current market value, investors in a leaseback will earn some extra income in rent and see financial rewards in their taxes. The buyer also benefits by possessing control over the leaseback property; after fulfilling the initial contract with the previous homeonwer, it is his to do with as he pleases.
As illustrated here, both the homeowner and buyer can profit from a leaseback. For sellers who are in need of money right away, the rewards of a leaseback are obvious. The rewards for the investor are even greater, but she must make sure that her primary investment is a good one.
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