Sell and Rent Back — Pros and Cons
Common in the UK, a sell and rent back (also known as a sale and rent back) is when you sell your house and rent it from the new landlord. This allows you to free up cash and potentially avoid foreclosure while still residing in your house, even if you are in mortgage arrears. Is it a good idea to sell your house and rent it back? Let’s take a look.
The big advantage of a sell and rent back is that, given a willing buyer, you will not have to move — at least in the short term. As part of the sale agreement, the buyer gives you not only money, but also a rental agreement. This sell and rent transaction is actually two transactions rolled into one.
Another advantage of a sell and rent back is that any debt on the house is transferred typically to the new owner. If the house is in mortgage arrears the lender may be willing to work out a payment schedule with the new owner instead of you, which means that you may avoid repossession.
The disadvantages of a sell and rent back are probably minor compared to the risks run by bankruptcy, repossession, and of course, eviction. When you rent back property ideally you avoid all of those pratfalls. However, you should realize that the sell rent back scheme is going to necessarily mean that you will get less than market value for your home, as this quick sale instead provides you the benefits above. Also, bear in mind that this rent back home part of a sell and rent back means that you are a renter, and when your rent agreement runs out, you need to renew it or find a new place to live.
In sum, a sell and rent back can be an effective way to gain liquidity quickly while staying in your home.