Here’s what you need to know before agreeing to a seller rent-back.
Right now, the market is tight, and sometimes the only way to get your offer accepted is to do a seller rent-back. If you and your client do decide to go that route, however, there are some things you’ll need to keep in mind.
First, find out why the seller wants a rent-back. This will help you determine if you even want to do it, and if you do, it’ll help you structure your terms. If the seller is closing on another property and all they need is a few extra days to pack up their belongings and move, that’s okay. If the seller hasn’t even found a replacement property yet, that might be a red flag.
Here are the pros to agreeing to a rent-back:
1. You’re more likely to get your offer accepted.
2. Your client will actually get to move into the property (at some point).
“ It’s best if you protect yourself upfront with a per diem, security deposit, and renter’s insurance.”
On the other hand, here are a few cons to rent-backs:
1. It may take the seller a long time to either close on the home they’re buying or find a home at all. If they don’t find a home within the set period, you may have to evict them, which can get costly.
2. If the rent-back is longer than 60 days, you may violate your lender’s mortgage rules. After 60 days, your property could be considered an investment property. If you do decide to do a rent-back, make sure the seller has renter’s insurance, submits a security deposit, and include a clause that charges them per diem if the transaction doesn’t close when they said it was going to. That will protect you from having to spend too much money on your mortgage.
Everyone’s situation is different. Many times, seller rent-backs are fine, but just remember, the longer the period between when escrow closes and when the seller finds and closes on their home, the likelier it is that other issues will come up.
If you have any questions about seller rent-backs or other real estate topics, feel free to reach out to me. I’d love to help you.