You don’t have to continue to own your property for the duration of your mortgage. If mortgage payments are too high, you might consider a leaseback, which is a way to make some extra cash and transfer the burden of ownership to another party.
When is a leaseback right for you? Read on to discover the details of leasebacks and certain alternatives, like co-homeownership with Balance.
In a nutshell, a leaseback is a financial setup where the owner of a property sells the property to a new owner but remains in the property and leases it from the new purchaser. In a homeownership context, a sale-leaseback agreement means you:
For example, say you purchase a house with a variable interest rate. However, as the economy shifts, the interest rate becomes too high for your current financial situation. Rather than selling the house and moving, you find a willing buyer to purchase the house. They then lend you the property through a traditional lease. Note that most leaseback lessees do end up moving out shortly after selling their properties.
Leasebacks are also often used for commercial and retail real estate properties. For instance, a small business owner may own a retail property but can’t make the mortgage payments. They will sell to a developer and take out a lease on the property to keep their store.
A sale-leaseback or leaseback agreement works whenever you find a buyer to take your property off your hands and then lease it back to you in the same condition. With a sale-leaseback agreement, you do not always retain the right to later purchase the property from the new lessor if they don’t want to sell it to you.
Generally, a leaseback only works when:
Leasebacks are most popular and profitable for properties that would already make strong rental homes. For instance, if you have a single-family home or townhouse in a desirable location, a buyer might be willing to purchase the property from you and pay off your mortgage, then let you stay in the property as a tenant.
The buyer might do this if their original plan was to purchase the property and rent it out. If your home wouldn’t make an ideal rental property, or if it needs extensive repairs, it may be difficult to find a buyer for a leaseback agreement.
A leaseback can seem like an attractive prospect, especially if you can’t make your mortgage payments. Some of the many benefits of a leaseback for your home include:
That said, leaseback arrangements do have some drawbacks you should keep in mind:
Though a leaseback can seem attractive at first glance, it removes your ownership from the property. There are alternatives you can pursue if your current mortgage arrangement is too financially difficult to maintain.
Balance Homes is a co-ownership solution with a mission to help American homeowners stay connected to the homes they love by offering a flexible alternative to traditional financing when life circumstances change. Our model also focuses on long-term financial health and education, helping homeowners understand their options, manage their equity, and build a plan that fits their needs.
Ready to get started? Get your free proposal today.
Sources:
Nearly 20 Percent of Sellers Move Out After Leaseback Period | National Association of Realtors
What is private mortgage insurance? | Consumer Financial Protection Bureau
What You Should Know About Co-Owning a House | Mortgages and Advice | U.S. News
