An Overview of Sale and Rent Back Plans

Have you been offered a chance to sell your property and then rent it back from the new owners? This scheme called sale- and rent back is one that a growing number of companies are engaging in to help homeowners find their way out of debt.

However, there are many drawbacks associated with becoming involved in such a scheme. The firms are usually unregulated and former homeowners are finding themselves in worse financial shape than they once were as a result of companies looking to cash in on the misfortunes of others.

The basics of sale and rent back schemes is that a company will purchase your home for a price that is well below the actual value of the home – often as much as 20% to 30% less. The company pays all the fees associated with the sale and then rents the home back to you at a monthly payment that is typically lower than your mortgage payment. Thus you can use the cash obtained from the sale to pay off other outstanding debts. Some companies even offer to pay the actual cost of the home at some point in the future.

The fact is that you are losing money on this sale because you are selling your home for thousands of pounds less than what its actual value. However, many homeowners who find themselves in financial difficulty and who are facing the prospect of foreclosure find that this is an easier route to take than losing their home or having to file for bankruptcy.

The enticing argument that sale and rent back companies use is that by selling your home on the open market and paying all the associated fees out of the profits, you realize only about 85% of the value of your home from the sale.

They take all the work out of the sale for you and make it easier for you to sell, which is what makes the deal attractive to homeowners anxious to make some money from the sale of their home. The firms also offer discretion in that no For Sale sign is posted on your property and your neighbours never know that the ownership has changed hands.

The monthly payment you would likely have to pay in rent when you take part in a sale and rent back scheme is the same amount as the new owner has to pay as the mortgage payment. This may actually be higher than what you were previously paying on your mortgage.

The need to obtain cash in a limited amount of time enables these companies to negotiate a lower price with the owner so that the firm obtains your property at a very low price. There is no security in the lease terms that the company puts in place so that you could find yourself in a six-month or one-year lease that will leave you worse off than you were before the sale.

While companies say that they will give you the best possible price, Hometrack, a UK property information group reports that for homeowners who sell their homes on their own “the average sale in England and Wales in May was at 95.7% of asking price, while the region with the lowest average sales to asking price percentage was Wales at 94%.”

When you sell your home on your own, agents will include a 5% reduction in the asking price, whereas the agents doing the valuation for a sale and rent back company will simply use the market value of the home. When you consider that the price you receive from the firm is about 15% or 20% lower than that, you are losing a considerable amount of money by taking part in such a scheme.

The best choice of action to take when you are forced to sell your home through a sale and rent back option is to simply and sell and move rather than exercising your option to rent your home from the firm.

You should schedule an appointment with your mortgage lender to discuss your options for repayment before you take such action because the lender may be able to offer you other options that enable you to retain ownership of your home and avoid foreclosure. Contrary to popular opinion lenders do not like to repossess your home and will help you work through your debt problems if at all possible.

The companies involved in sale and rent back schemes are looking to make money on the backs of those who can least afford it. By buying your property at a bargain price and renting it back to you for the monthly mortgage payment, they are in a position to sell your home at a much higher price when the market starts to recover. While it is an option, you should carefully consider all your options before resorting to this solution.