What is a Rent Back Agreement?
Lucas Grohn
Senior Manager of Sales at Truehold - A Thought-Leader in Real Estate
Your home is both an investment and a space to live and flourish. And over the years, its monetary and sentimental value has grown alongside you and your family.
No matter how much a house is worth, however, its value does no good to you locked inside the walls. You’d never dream of leaving the home you love, but you sure do dream of all the things you could do with the cash you’d get for selling it.
A rent-back agreement can help you access your home’s equity without having to leave it. Read on if you want to learn how to get a lump cash sum without giving up the life you love.
How Does a Rent-Back Agreement Work?
In a rent-back agreement, a homeowner sells their house to someone who agrees to rent it back to them afterward.1
That’s about it, and they’re becoming increasingly typical with house sales. Generally, the home seller and home buyer sign a 30- to 60-day rent-back agreement to allow for a transitional rental period between owners.2 Rent-back agreements can last for as long as both parties care to uphold them, however.
What are the Benefits of a Rent Back Agreement?
Rent-back agreements can be helpful for homeowners who want to change their life but not their address. Some of the primary benefits include:
- Unlocking equity – Homes are the most valuable asset that the average person owns, but you can’t buy your dream life with lumber and glass. Selling your home nets you the cash to spend on the things you’ve always wanted but haven’t had the money for yet.
- Settling debts – Paying off your mortgage and other loans can have you breathing a breath of fresh air. You’ll rest much easier without huge sums haunting your life and line of credit.
- Absolving yourself of the costs of home ownership – Owning a house is expensive. Property tax varies nationwide, but it can be as high as 2.21% of a home’s value.3 On top of this, repairs, upgrades, closing costs, homeowners’ insurance, your mortgage payment, and general maintenance all contribute to the high costs of home ownership.
- Less work around the house – When renters have a leaky faucet or faulty wiring, they don’t go to the hardware store or get out their toolbox. They call the owners, who come and fix it themselves (or dispatch a professional). On top of the costs saved from reduced maintenance, you’ll also have less labor to do.
- Staying in your community – The primary benefit of signing a rent-back agreement is remaining in your home. You won’t have to give up the house, community, and area you love to get the money you want.
- Avoiding the uncertainty of assets – The market fluctuates, and when it drops, so does the worth of your home. Cash in hand keeps its value no matter what’s going on with real estate trends.
Rent-back agreements can help you take care of sudden medical debts and other liabilities or simply live a healthy and rewarding life. Still, if you’re considering one for your home, there are a few important things to take note of.
Learn more about Truehold's flexible sale-leaseback
Click hereWhat Else Should I Know About Rent Back Agreements?
While there are benefits, there are also some rent-back agreement risks to be aware of, so understanding the terms is critical. Rent-back agreements are unique between the home seller and home buyer, so factors such as costs and terms will vary by sale. That being said, there are some associated fees and situations that generally hold true across most of these contracts:
- Realtor commission fees – As with most residential property sales, the realtor will take a cut for their role in the transaction. Commission fees will top out at around 6% of your current home’s value.4
- Taxes – Akin to the majority of real estate transactions, the government will charge taxes on your home’s sale, even if it comes with a rent-back agreement attached. Actual tax amounts vary by state, jurisdiction, and even person-to-person. When selling your home, a tax expert can help you determine how much you should pay.
- Signing a lease – The specific details of a rental contract will vary with each rent-back agreement, but once you’ve sold your home, you’re subject to the rules set by the owner. You still maintain your rights as a tenant, but any regulations or alterations to the property are at the discretion of the leaseholder.
Where Can I Get a Rent Back Agreement?
If a rent-back agreement sounds like the right fit for your home and situation, you might be wondering who offers such a service.
Truehold is one such option. Through a sell and stay transaction, you can sell your home and then rent it back. If this sounds interesting to you, get in touch today!
You'll be offered a fair price for your home and for your rent. If it seems too good to be true, that’s because it’s not just true, it’s Truehold.
Sources:
1. United Kingdom House of Commons. The Regulation of Sale and Rent Back Agreements. https://researchbriefings.files.parliament.uk/
2. Forbes. Seller Rent-Backs Can Be A Powerful Tool In A Buyer's Toolbox. https://www.forbes.com/
3. USA Today. How much are property taxes across the US? Differences can be in the thousands of dollars. https://www.usatoday.com/
4. Truehold. FAQs. https://www.truehold.com/
Lucas Grohn
Senior Manager of Sales at Truehold - A Thought-Leader in Real Estate
Lucas Grohn is a Senior Manager of Sales at Truehold, leading a team of local market experts and overseeing the brand’s sales outreach strategy. Lucas has been a thought-leader in the real estate industry for more than a decade. He got his start working alongside institutional investors and has since found himself in a myriad of different roles.From being a Managing Broker, to training new agents at some of the country's most well known real estate brands (Redfin, Zillow, RE/MAX). He spends his free time hanging with his family on the beach in Georgia and taking pictures of two daughters (1&4).
