Home Equity

4 Sale-Leaseback Benefits: Is a Sale-Leaseback Right for You?

March 16, 2023

Whether you’re in the market for a new home or you’re looking for ways to bolster your bank account to pay off debt or finance a dream commercial property, you might be thinking about going the sale-leaseback route.

And why not? After all, sale-leasebacks put money in your pocket and allow you to stay in your home.¹ That sounds pretty good, right?

Before you sign any contracts, there’s some information you should know that can help you determine whether a sale-leaseback transaction is the right choice for you, such as sale-leaseback tax treatment among other things. Keep reading for the top sale-leaseback benefits and possible drawbacks.

4 Benefits of a Sale-Leaseback Transaction

How does a sale-leaseback work to benefit sellers? In the right situation, a sale-leaseback transaction, also known as a rent-back agreement, can pose several benefits to sellers. For the right sellers, sale-leaseback transactions can be stepping stones to important life accomplishments.

#1 You Create Capital Immediately

One of the biggest benefits of sale and leaseback transactions is that they allow any property owner to convert the residential property or commercial property into capital. Selling your property and leasing it back over time gives you an immediate way to convert the equity you’ve earned through property ownership into cash.

When you convert your home equity into cash, you can tackle any number of challenges:

Pay off debt
Make a down payment on a new home
Make an investment
Start a new business

#2 It Won’t Disrupt Your Lifestyle

Another benefit of a sale-leaseback is that you don’t have to move out of your home while you accomplish whatever goal has motivated you to broker the deal.

If you’re choosing a sale-leaseback because you want to use your equity to buy a new house, you can convert your equity and continue living in your current home as a renter while you find a new one.

#3 You Avoid Certain Contingencies

Another one of the benefits of sale and leaseback transactions is that they can help you avoid certain contingencies that can make purchasing a new home difficult for some buyers, like home-sale contingencies.

The majority of home sales are financed by mortgage financing. But some lenders won’t approve the purchase of a new home until the old one is sold. Selling your home and remaining as a renter is a convenient loophole for sellers.²

#4 Free Yourself from Maintenance

Finally, another benefit of sale-leaseback transactions is that once you become a renter in your home, you don’t have to worry about paying for repairs or financing renovations. Instead, those responsibilities fall to the new owner.

That can be a huge boon to homeowners who are looking for a new house as it means they don’t have to make costly common alterations, like:

Repairing the roof
Foundation repairs
Appliance replacement

Is a Sale-Leaseback Right for Me?

When it comes to how to evaluate a sale-leaseback, deciding whether or not a sale-leaseback situation is the right real estate transaction for you means assessing the various risks that the situation can entail and determining whether they’re worth it, given your situation.

What is the risk of a sale-leaseback?

There are certain risks associated with sale-leaseback transactions, but they can generally be avoided by seeking legal counsel or working with a trusted buyer or real estate investor with a good reputation. When you’re smart about who you sell to, you’re more likely to enter into a deal that’s beneficial to you.

In other words, you don’t have to worry about common pitfalls like:¹

High rental payments
Vague expectations or contract conditions
Loss of control

Key Takeaways:

When it comes to the benefits of sale-leaseback transactions, here are the main takeaways:

The top benefits include converting home equity, non-disruptive sales, avoiding contingencies, and freeing yourself from home maintenance and repair.
You can avoid common risks by working with a trusted company.

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