Is There Money to Be Made When Doing a (SARB) Sale & Rent Back Deal?
What is a sale and rent back? This is just as it sounds. It is when you by a property off a vendor and rent it back to them. These types of property deals have become really popular in the last few years. They can be great for the vendor plus great for the Investor.
However, these deals in particular do receive bad press from time to time and there are inherent problems that you need to be aware of and know how to avoid.
The fact is that lots of repossessions turn into sale and rent backs (SARBS). Part of the reason for this might be that in general people who are being repossession often don’t want to move out of their homes. So if an option exists where they can get rid of their debt and that also stops their lenders chasing them, while still living in their current home, then this is their preferred route. Hence, the ideal solution in many cases is the sale and rent back.
If you are going to do a SARB one of your main focuses should be trying to educate the vendor financially so that they don’t end up in a similar situation again.
By buying their property off them and effectively paying off their debt and then allowing them to continue to live there (sometimes at a considerably reduced rent for at least a few months) you are giving them another chance to get their life and finances in order.
By selling to you and then renting the same property through you they are using their (to use a monopoly analogy) “Get Out Of Jail Card”. They are playing their trump card and they need to understand the importance of it.
If you buy the property and they are not able to manage their finances, it could be the worse thing for both of you. Being repossessed can be one of the most traumatic experiences that anyone can go through in life.
If you have saved a family from this by buying their property, then a few months down the line they are not paying rent because they have got themselves into financial trouble again, will you be able to start the eviction process, knowing that it is going to rip them apart once more.
This is one of the huge dilemmas that face landlords that deal in sale and rent back property. Some property investors genuinely love to help people and get a buzz from stopping repossession and helping families stay in their own home, but at the end of the day, they still have a business to run and someone has got to pay the mortgage.
So, while this type of property deal can provide property investors with eager long term tenants, it can also provide them with difficult tenants. As a SARB landlord you must effectively vet the people you are buying the property from. And you must be confident that they will be able to afford to pay the rent and that they are eager and willing to be good tenants.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.