Home Selling in Temecula>Question Details

TMad, Home Seller in Temecula, CA

Question about rent-back option in listing.

Asked by TMad, Temecula, CA Mon Apr 8, 2013

We are thinking about selling our home in the next 6-12 months. We LOVE our home, but it is also a "money maker" home - it will sell itself, and will sell quickly. We are thinking about putting in the listing (since we are in no rush and have nothing to lose) that we want to first entertain offers from buyers (such an investors, or those who want to purchase the home as a rental) who are willing to rent the home to US before renting it to another party. Of course, there will be offers from buyers who actually want to live in the home, but we would first like to see if we can sell it to a party who will rent it to us, strictly because we don't want to move out of state for another 4-5 years, we love our home, and we don't want to go through the process of moving again. If I put it in the listing, and the buyers are going to rent the home anyway, can't we put it in writing that they will rent it to us first before trying to rent it to someone else once the house closes?

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Answers

11
This happened on several of the most recent listings we sold in May and June, 2013. We either did a longer escrow, or we arranged so the seller could rent it back. Not a problem at all. Call or email if you need more info.
1 vote Thank Flag Link Sun Jun 16, 2013
I can't imagine anyone wanting to do a rent-back fro 4-5 years. These are usually utilized for small time periods, like finishing a school year, or allowing time for moving.

Very simple question, if you don't want to move for 4-5 years...why sell? Your proposal does not make a lot of sense to me.

Best Wishes
1 vote Thank Flag Link Mon Apr 8, 2013
Hi TMad,
The short answer to your question is Yes, you can make it part of the agreement to do a seller rent back for any length of time. Please let me know if I can be of further assistance.

Thanks!
Sinead McAllister-Clifford
Real Estate Broker/ Realtor®

McAllister Homes Real Estate
Residential Sales & Property Management
http://www.McAllisterHomes.com
License 01366009
858-205-5215 CELL
brokermcallister@gmail.com EMAIL
0 votes Thank Flag Link Thu Apr 11, 2013
What you are trying to do is time the market. Good luck with that!

You are fearful that your home will decline in value in 4-5 years so you want to sell sooner and pay rent to the new owner. You think the decline will take place because of … ???

Do you think that renting your house from the new owner will cost you more or less on a cash flow basis? If I was the buyer of your house with an agreement to keep you on as a tenant, what would I get in exchange? If I could get higher rent by renting to someone else why would I agree to keep you as a tenant? I would expect a rental premium from your or a discount in the sale price of offset a concession in rent to you.

Also, think about the rent that you would be paying in cash to cover the new owner’s cost of ownership including his PITI, HOA, upkeep and ROI and weigh that against the after tax cost of your ownership now given that much of your monthly mortgage payment is tax-deductible interest.

I respect the fact that you are trying to construct a long-term plan. I think you need to sit down with some professional that your respect – local Realtor, local banker, and investment professional – and bounce your ideas off them.
0 votes Thank Flag Link Tue Apr 9, 2013
Perhaps I need to offer more info: We can't sell until 2 years because of capital gains. We want to make an out of state move within 4-5 years, and want to purchase a parcel of land (in another state) to build on when we move (budget being around $100K for the parcel). We have $120K cash invested in the home (that we put down), and then there is whatever else we would make on the sale. We bought for $383K, hoping to sell for $550K. A comp in our neighborhood (same model, definitely not as nice) is a pending-sale at $510K. We are thinking that we would rent until we move out of state (in other words: sell our home HIGH and buy the land LOW), which is why we would want to simply rent back our own home instead of moving again. Yes, there would be no tax deduction, but at least we could move when we're ready, and would have made money while the market is on the hotter side. Not sure what the market will be like in the next 6-12 months. Maybe good, maybe bad. We currently pay over $1900 for our mortgage, and another $130 for HOA, $85 for pool guy, and my husband does the yardwork. Had not yet considered the tax part - good advice from you all. Are we taxed if we put the money into land instead of a home? It's still real estate, right?
0 votes Thank Flag Link Mon Apr 8, 2013
Thank you for clarifying TMad.

Generally , there is no capital gains on the profit from the sale of your primary residence providing you have lived in the home for 2 years , within the past 5 years. Also, there is a one time 250K (single person)/500K (married couple) tax exemption for any tax payer. Also, some sellers who own multiple properties utilize what is called a 1031 exchange to avoid paying capital gains at time of sale.

As far as the market goes, the general prediction is that values will continue to rise for the remainder of this year.


Hope this helps some...


Jory Blake
951.742.3751
Flag Tue Apr 9, 2013
Sure you can. You would simply have your agent market the home as "sale subject to buyer agreement to lease (or rent) property back to seller." Or some similar language.

I agree with Cindy in that your pool of buyers might be very limited were you to ask for a 4-5 year lease.

Who know's...things are so hot right now you might get lucky and find a buyer who wants to move to our area in 4-5 years and wants to secure a property now before things get out of hand price-wise.

Regards,

Joe McDermott
http://www.temecularealestatesearch.com
0 votes Thank Flag Link Mon Apr 8, 2013
I agree with Cindy. It is highly likely that your home will be worth more by the time you are ready to move out of state than it is now. Why let someone else to have that gain and pay their mortgage by renting from them?
0 votes Thank Flag Link Mon Apr 8, 2013
Hi TMad,

As your hearing, it's all about negotiating the sale, but I agree with Ron Thomas below. I'm not a tax accountant and I'm not giving you Tax advice, but you need to speak with a Tax Professional before you make this decision. Think about all the possible scenarios. Loosing your MID and possibly incurring a higher than your current mortgage rent payment, might not be a good financial business decision. And since your home is the largest investment you have, don't make a decision without that consultation first.

Thank You for using Trulia.

Blessings,
Realtor Ricki
0 votes Thank Flag Link Mon Apr 8, 2013
Hello, yes there are always options to rent back and if this is stipulated up front that you are only entertaining selling the home to an investor who is looking to rent it out you can definitely do that. At the same time you should speak with your accountant to see if this would make sense for you to consider doing as there may be tax consequences if you do not purchase another property and there is a gain from your current home. I hope this helps.
0 votes Thank Flag Link Mon Apr 8, 2013
Yes! You certainly can.
But if you love the home, and you want to stay in the home, why do you want to trade your mortage for a rent payment?
You will lose the tax deduction, and if you are actually making money, that too will be taxable if you don't buy another home, (see your tax advisor!)
0 votes Thank Flag Link Mon Apr 8, 2013
Are we taxed if we buy land and not a home? I will have to ask my tax guy!! Good point! :)
Flag Mon Apr 8, 2013
We can't sell until 2 years because of capital gains. We want to make an out of state move within 4-5 years, and want to purchase a parcel of land to build on when we move (budget being around $100K for the parcel). We have $120K cash invested in the home (that we put down), and then there is whatever else we would make on the sale. We bought for $383K, hoping to sell for $550K. A comp in our neighborhood (same model, definitely not as nice) is a pending-sale at $510K. We are thinking that we would rent until we move out of state, which is why we would want to simply rent back our own home instead of moving again. Yes, there would be no tax deduction, but at least we could move when we're ready, and would have made money while the market is on the hotter side. Not sure what the market will be like in the next 6-12 months. Maybe good, maybe bad. We currently pay over $1900 for our mortgage, and another $130 for HOA, $85 for pool guy, and my husband does the yardwork.
Flag Mon Apr 8, 2013
Yes! I specialize in this area of Real Estate and have published blogs ( http://riversidehomesales.blogspot.com/2013/03/moveuphomepur…) specific to this topic.

In California, I utilize the CAR form LSA , Lease After Sale Agreement.
When properly executed, it creates a legally binding agreement for the proposed buyer to accept a specific amount from the seller to allow time in the property after the sale is recorded as well as who pays for other items such as taxes,maintenance , utilities,etc.

I have had much success and zero failure assisting sellers accomplish this. I would advise you to seek a listing agent who is skilled and proven in this area. If not done properly , there can be a lot of confusion and disarray.

I'd love to provide you a quote and more details!


Jory Blake
951.742.3751
Web Reference: http://www.JoryBlake.com
0 votes Thank Flag Link Mon Apr 8, 2013
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