Purchase with Seller Rent-back? Tips to make it work?

Question

Hey BP community - There's a property I'm very interested in which the Seller is looking to do a rent-back situation up to 6 months following closing.  Once vacant, the house will need at minimum, duct replacement, refinished floors and fresh paint throughout to rid cigarette smoke and cat smell before moving in.  Assuming I really and truly want to make this deal work, what's the best way to proceed?  Looking for advice, pros/cons, best practices and pitfalls to avoid specifically on the rent-back piece.  TIA!!!

Max T. · Answer

@Tracy Cummins

Have title company hold a chunk of sale proceeds in escrow. Not to be released until seller gives full possession.

Charlie MacPherson · Answer

@Tracy Cummins  You need to be prepared in the event that they refuse to leave at the end of the lease - especially if the COVID eviction moratorium restriction is still in place where you are.  That can make it virtually impossible to evict, or at least, very expensive.

If circumstances allow, I'd push to get it under contract now with closing scheduled in 6 months. Be careful that you have an out if the property is no longer in the same condition in which you viewed it. Include language stating that the seller still has to maintain insurance at a specified level.

You should have an attorney involved so you don't miss any potential pitfalls, but if you go forward, do so knowing that this is risky.

Charles Breunig · Answer

In addition to what others said, here are some things we did in some of college town ltr’s:

New Lease signed within xx days of contract

Lease effective date would be closing date, with pro-rated rent

Deposit due with lease or at closing (if our financing allowed to be included in closing, we just did that, along with rent)

In the lease, I would have months 7+ listed at 25% higher in case of holdover, and deposit lost if they stay longer

Possibly consider a rent discount if they pay 6 months at closingOf course, it is all negotiable to make your deal

Nathan Gesner · Answer

Most agents aren't very skilled at this and they really don't care because they'll collect their commission and disappear.

Make the Sellers fill out an application so you can at least have their contact information. You probably don't need to run a background check since they've been living there and paying their mortgage. You already know how they live and the condition of the home, so there's not much point in documenting things in detail. Charge them a deposit, make them sign a lease, and charge them close to market rate.

Be very clear about maintenance. You don't want to rent it to them and they start demanding you replace a drafty door that has been drafty for the last ten years.

Purchase with Seller Rent-back? Tips to make it work?

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